M/S Dozco India P.Ltd vs M/S Doosan Infracore Co.Ltd

"REPORTABLE"

THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

Arbitration Petition No. 5 of 2008

M/s Dozco India P. Ltd. ... Petitioner

Versus

M/s Doosan Infracore Co. Ltd. ... Respondent

J U D G M E N T

V.S. SIRPURKAR, J.

1. This is a petition under section 11(6) of the

Arbitration and Conciliation Act (hereinafter called

`the Act'). While the petitioner is registered under

the Companies Act, 1956, the respondent is a company

incorporated in Seoul, South Korea with its principle

place at Seoul. The disputes have arisen in between

these two companies out of a Distributorship Agreement

which was entered between the parties on 2.2.2004. By

this, the petitioner was to be the exclusive

distributor of the respondent in India and Bhutan for

its products like Excavators, Wheel Loaders etc.

Article 23 of the Distributorship Agreement provides 2

for the resolution of disputes by arbitration. Since

the disputes have arisen in between the two companies

and since one of the companies is based in Seoul, South

Korea, the present petition has been filed treating

this to be an international arbitration. There is no

dispute between the parties that this will be the

international arbitration on the basis of the

arbitration Clause being Article 23 of the

Distributorship Agreement.

2. There is also no dispute that the disputes have

arisen between the parties on account of which the

respondent purported to terminate the Agreement entered

into between them. In pursuance of the disputes, the

petitioner issued notice dated 01.09.2007 for

appointment of an Arbitrator to resolve the disputes

arisen between the parties. However, that not having

been done, the present petition is necessitated.

3. Since the parties have not disputed about the

existence of the arbitration clause, a live issue on

account of the existence of the disputes, there would

be no question of recording any finding. However, for

putting the record straight, the issues as raised by

the petitioner are as follows:

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"1. whether the premature and whether allegedly premature and unilateral termination of the distributorship agreement by the respondent is valid in law.

2. whether the various contentions raised by respondent for terminating the distributorship agreement are valid in law

3. whether the respondent are right in unilaterally raising the price of the products in the middle of the year

4. whether the respondent is right in unilaterally controlling the supplies to the petitioner

5. whether the respondent is stopped from its promise to the petitioner to appoint them as national dealer for 10 years

6. whether the respondents are liable for damages to petitioner for breach"

4. The petition is countered on behalf of the

respondent who opposes the same on account of

maintainability. According to the respondent, only the

Rules of Arbitration of International Chamber of

Commerce would apply in accordance with the Agreement

between the parties. It is contended by the respondent

that this Court will have no jurisdiction much less

under Section 11(6) of the Act to appoint Arbitrator,

particularly, because it has been specifically agreed

in Article 22 and 23 which are as under:

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"Article 22. Governing Laws - 22.1 : This agreement shall be governed by and construed in accordance with the laws of The Republic of Korea.

Article 23. Arbitration - 23.1 : All disputes arising in connection with this Agreement shall be finally settled by arbitration in Seoul, Korea (or such other place as the parties may agree in writing), pursuant to the rules of agreement then in force of the International Chamber of Commerce (emphasis supplied)"

5. The respondent, therefore, contended that the

petitioner would not be entitled to maintain the

present proceedings in India by invoking the provisions

of the Act. The respondent specifically disputes the

stand of the petitioner that there is nothing in the

Agreement to deny the applicability of Indian

procedural law seeking appointment of Arbitrator. The

respondent also specifically contended that there is

express exclusion of Indian Courts and/or the

applicability of the Act. Their basic contention was

that under the relevant clauses the jurisdiction of the

Indian Courts is specifically outstayed. This is

particularly because it is specifically provided in

Clause 33 that there is an express agreement to get the

disputes settled by arbitration in Seoul in terms of

the Rules of Arbitration of Indian Chamber of Commerce, 5

Paris. The respondent in its Counter has relied on

Article 4 of the Rules of Arbitration of International

Chamber of Commerce.

6. It seems that previously an application was filed

under Section 9 of the Act before the Madras High Court

seeking interim injunction restraining the respondents,

their men and agents from in any manner dealing with

their products in India directly till the conclusion of

the arbitral proceedings. It was pointed out that

there was an ex parte order of ad interim injunction by

the High Court on 8.5.2008. However, when the

respondent moved an application for vacating the ex

parte order, the respondent had specifically contended

that the Courts at Chennai had no jurisdiction to

entertain the application. It was pointed out that the

respondent's application for vacating the injunction

was allowed by the Madras High Court by its order dated

9.6.2008. However, in its order, it seems that the

Madras High Court clarified that the question relating

to the jurisdiction of the Court was left open by the

parties to be decided at a later stage. It also

recorded a finding that it was not necessary for it to

go into the question of jurisdiction for the purpose of 6

considering the injunction application. The respondent

has filed the said order before this Court along with

the application under Section 9.

7. From the rival contentions raised, the only issue

is whether this Court would be justified and would have

the jurisdiction to appoint an Arbitrator under Section

11 (6) of the Act.

8. Ms. Mohana, learned Counsel appearing on behalf of

the petitioner, heavily relied on a few judgments of

this Court, namely, Bhatia International v. Bulk

Trading S.A. & Anr. [2002(4) SCC 105], Indtel Technical

Services Private Ltd. v. W.S. Atkins Rail Ltd. [2008

(10) SCC 308] and Citation Infowares Ltd. v. Equinox

Corporation [2009 (7) SCC 220]. All these cases,

according to her have settled the law holding that even

in case of international commercial arbitration which

are to be held out of India and to be governed by

foreign law, the provisions of Part I of the Act would

still apply unless the parties by agreement, express or

implied, excludes all or any of provisions of Part I of

the Act. She has also drawn the attention of the Court

to another decision of this Court in National Thermal

Power Corporation v. Singer Company & Ors. [1992 (3) 7

SCC 551]. The attention of the Court was also invited

to the language of the decision in CMC Ltd. v. Unit

Trust of India & Ors. [2007 (10) SCC 751]. There are

some other rulings which are relied upon by the learned

Counsel. The main contention, however, is based on

paragraph 32 of the decision in Bhatia International v.

Bulk Trading S.A. & Anr. (cited supra) as also

paragraph 36 of the decision in Indtel Technical

Services Private Ltd. v. W.S. Atkins Rail Ltd. (cited

supra), where reliance was placed on the decision in

Bhatia International v. Bulk Trading S.A. & Anr. (cited

supra) which is decision rendered by a Three Judge

Bench. The attention of the Court was also invited to

paragraphs 30, 31 and 36 as also to paragraphs 35, 38

of that judgment where the decision in Bhatia

International v. Bulk Trading S.A. & Anr. (cited supra)

was relied upon. From all these three judgments, it

becomes clear that unless the jurisdiction of the

Indian Courts is not specifically excluded at least

Part I of the Act whereunder there is a power to

appoint Arbitrator is covered by Section 11 (6) of the

Act, this Court would have jurisdiction to appoint an

Arbitrator even if the arbitration is to be governed by

foreign law.

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9. Shri Gurukrishna Kumar, learned Counsel for the

respondent, however, while opposing this plea urged

that in this case and, more particularly, in paragraph

23 such exclusion can be specifically seen. He has

compared the language of Clause 23, more particularly,

with the jurisdictional cause which had fallen for

consideration in Citation Infowares Ltd. v. Equinox

Corporation (supra). The learned Counsel also argued

that the bracketed portion in Article 23 cannot be

interpreted so as to mean that the seat of arbitration

could be anywhere else as per the choice of the

parties. He pointed out that the bracketed portion is

only for the purpose of providing the convenience of

holding proceedings of the arbitration else where than

Seoul. However, that cannot be allowed to override the

main Clause of Article 23. The learned Counsel has

contended that the law laid down in Bhatia

International v. Bulk Trading S.A. & Anr. (cited supra)

and the subsequent decisions would not be applicable. The learned Counsel relied on Sumitomo Heavy Industries

Ltd. v. ONGC Ltd. & Ors. [1998 (1) SCC 305]. He also

relied on a decision reported as Naviera Amozonica

Peruana S.A. v. Compania Internationacional De Seguros

Del Peru [1998] Vol.1 Lloyd's Law Reports. 9

10. The learned Counsel earnestly argued that there is

distinction between a legal seat of the arbitration and

geographically convenient location for holding

proceedings and that is a common feature of

international arbitration. He also relied on a passage

in Redfern and Hunter which runs as under:

"The preceding discussion has been on the basis that there is only one `place' of arbitration. This will be the place chosen by or on behalf of the parties and it will be designated in the arbitration agreement or the terms of reference or the minutes of proceedings or in some other was as the place of `seat' of the arbitration. This does not mean, however, that the arbitral Tribunal must hold all its meeting or hearings at the place of arbitration. International commercial arbitration often involves people of many different nationalities, from different countries. In these circumstances, it is by no means unusual for an arbitral Tribunal to hold meeting- or even hearing - in a place other than the designated place of arbitration, either for its own convenience or for the convenience of the parties or their witnesses... It may be more convenient for an arbitral tribunal sitting in one country to conduct a hearing in another country - for instance for the purpose of taking evidence ... In such circumstances, each move of the arbitral Tribunal does not if itself mean that the seat of arbitration changes. The seat of the arbitration remain the place initially agreed by or on behalf of the parties" (Emphasis supplied)

11. According to him, as per the Agreement between the

parties, it is clear that the parties have chosen the 1

proper law of contract as also the arbitration

agreement to be Korean law with a seat of arbitration

in Seoul, South Korea and the arbitration law being

conducted in accordance with exhaustive Rules of the

International Chamber of Commerce.

12. On the backdrop of these conflicting claims, the

question boils down to as to what is the true

interpretation of Article 23. This Article 23 will

have to be read in the backdrop of Article 22 and more

particularly, Article 22.1. It is clear from the

language of Article 22.1 that the whole Agreement would

be governed by and construed in accordance with the

laws of The Republic of Korea. It is for this reason

that the respondent heavily relied on the law laid down

in Sumitomo Heavy Industries Ltd. v. ONGC Ltd. & Ors.

(cited supra). This judgment is a complete authority

on the proposition that the arbitrability of the

dispute is to be determined in terms of the law

governing arbitration agreement and the arbitration

proceedings has to be conducted in accordance with the

curial law. This Court, in that judgment, relying on

Mustill and Boyd (the Law and Practice of Commercial

Arbitration in England, 2nd Edition), observed in 1

paragraph 15 that where the law governing the conduct

of the reference is different from the law governing

the underlying arbitration agreement, the Court looks

to the arbitration agreement to see if the dispute is

arbitrable, then to the curial law to see how the

reference should be conducted and then returns to the

first law in order to give effect to the resulting

award. In paragraph 16, this Court, in no uncertain

terms, declared that the law which would apply to the

filing of the award, to its enforcement and to its

setting aside would be the law governing the agreement

to arbitrate and the performance of that agreement.

The Court relied on the observations in Mustill and

Boyd to the effect:-

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

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

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

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

xxxxx xxxxx xxxxx 1

1. The proper law of the arbitration agreement governs the validity of the arbitration agreement, the question whether a dispute lies within the scope of the arbitration agreement; the validity of the notice of arbitration; the Constitution of the tribunal; the question whether an award lies within the jurisdiction of the arbitrator; the formal validity of the award; the question whether the parties have been discharged from any obligation to arbitrate future disputes.

2. The curial law governs; the manner in which the reference is to be conducted; the procedural powers and duties of the arbitrator; questions of evidence; the determination of the proper law of the contract.

3. The proper law of the reference governs: the question whether the parties have been discharged from their obligation to continue with the reference of the individual dispute." (Emphasis supplied)

The following paragraph from Mustill and Boyd is

extremely important for the decision of this case:-

"In the absence of express agreement, there is a strong prima facie presumption that the parties intend the curial law to be the law of the 'seat' of the arbitration, i.e. the place at which the arbitration is to be conducted, on the ground that that is the country most closely connected with the proceedings. So in order to determine the curial law in the absence of an express choice by the parties it is first necessary to determine the seat of the arbitration, by construing the agreement to arbitrate."

In paragraphs 15 and 16, this Court has heavily

relied on the observations quoted above. If we see the

language of Article 23.1 in the light of the Article

22.1, it is clear that the parties had agreed that the

disputes arising out of the Agreement between them would

be finally settled by the arbitration in Seoul, Korea. 1

Not only that, but the rules of arbitration to be made

applicable were the Rules of International Chamber of

Commerce. This gives the prima facie impression that

the seat of arbitration was only in Seoul, South Korea.

However, Ms. Mohana, learned Counsel appearing on behalf

of the petitioner drew our attention to the bracketed

portion and contended that because of the bracketed

portion which is to the effect "or such other place as

the parties may agree in writing", the seat could be

elsewhere also. It is based on this that Ms. Mohana

contended that, therefore, there is no express exclusion

of Part I of the Act. It is not possible to accept this

contention for the simple reason that a bracket could

not be allowed to control the main clause. Bracketed

portion is only for the purposes of further explanation.

In my opinion, Shri Gurukrishna Kumar, learned Counsel

appearing on behalf of the respondent, is right in

contending that the bracketed portion is meant only for

the convenience of the arbitral Tribunal and/or the

parties for conducting the proceedings of the

arbitration, but the bracketed portion does not, in any

manner, change the seat of arbitration, which is only

Seoul, Korea. The language is clearly indicative of the

express exclusion of Part I of the Act. If there is 1

such exclusion, then the law laid down in Bhatia

International v. Bulk Trading S.A. & Anr. (cited supra)

must apply holding:-

"In cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case, the laws or rules chosen by the parties would prevail. Any provision in Part I, which is contrary to or excluded by that law or rules will not apply."

Even in Indtel Technical Services Private Ltd. v. W.S.

Atkins Rail Ltd. (cited supra), the parties had not

chosen the law governing the arbitration procedure

including the seat/venue of arbitration and it was,

therefore, that the Court went on to exercise the

jurisdiction under Section 11(6) of the Act. It was

specifically found therein that there was no exclusion

of the provisions of the Act by the parties either

expressly or impliedly, which is clear from the

observations made in the paragraph 37 of that judgment.

13. Ms. Mohana, learned Counsel appearing on behalf of

the petitioner, however, very heavily relied on the

decision in Citation Infowares Ltd. v. Equinox

Corporation (cited supra). There also, the parties had

agreed to be governed by the laws of California, USA. 1

The learned Counsel invited our attention to the Clause

10.1 of the agreement therein, which runs 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."

Ms. Mohana further submitted that the language of

this Clause is quite comparable to Article 23.1 of the

Distributorship Agreement between the parties in this

case, whereas, Shri Gurukrishna Kumar, learned Counsel

for the respondent contended that there is essential

difference in the language of both the Clauses. He

pointed out that the language of Article 23.1, in

contradistinction with the Clause 10.1 in the case of

Citation Infowares Ltd. v. Equinox Corporation (cited

supra), clearly spells out that the seat of the

arbitration was agreed to be in Seoul, Korea and

thereby, there would be express exclusion of Part I of

the Act. In my opinion, there is essential difference

between the clauses referred to in the case of Citation

Infowares Ltd. v. Equinox Corporation (cited supra) as

also in Indtel Technical Services Private Ltd. v. W.S.

Atkins Rail Ltd. (cited supra) on one hand and Article 1

23.1 in the present case, on the other. Shri

Gurukrishna Kumar rightly pointed out that the

advantage of bracketed portion cannot be taken,

particularly, in view of the decision in Naviera

Amozonica Peruana S.A. v. Compania Internationacional

De Seguros Del Peru (cited supra), wherein it was

held:-

"All contracts which provide for arbitration and contain a foreign element may involve three potentially relevant systems of law: (a) the law governing the substantive contract; (2) the law governing the agreement to arbitrate and the performance of that agreement; (3) the law governing the conduct of the arbitration. In the majority of the cases all three will be the same, but (1) will often be different from (2) and (3) and occasionally, but rarely, (2) may also differ from (3)".

That is exactly the case here. The language of

Article 23.1 clearly suggests that all the three laws

are the laws of The Republic of Korea with the seat of

the arbitration in Seoul, Korea and the arbitration to

be conducted in accordance with the rules of

International Chamber of Commerce. In respect of the

bracketed portion, however, it is to be seen that it

was observed in that case:-

".... It seems clear that the submissions advanced below confused the legal "seat" etc. of an arbitration with the geographically convenient place or places for holding hearings. This distinction is nowadays a 1

common feature of international arbitrations and is helpfully explained in Redfern and Hunter in the following passage under the heading "The Place of Arbitration":

The preceding discussion has been on the basis that there is only one "place" of arbitration. This will be the place chosen by or on behalf of the parties; and it will be designated in the arbitration agreement or the terms of reference or the minutes of proceedings or in some other way as the place or "seat" of the arbitration. This does not mean, however, that the arbitral tribunal must hold all its meetings or hearings at the place of arbitration. International commercial arbitration often involves people of many different nationalities, from many different countries. In these circumstances, it is by no means unusual for an arbitral tribunal to hold meetings - or even hearings - in a place other than the designated place of arbitration, either for its own convenience or for the convenience of the parties or their witnesses..........

It may be more convenient for an arbitral tribunal sitting in one country to conduct a hearing in another country - for instance, for the purpose of taking evidence..... In such circumstances, each move of the arbitral tribunal does not of itself mean that the seat of the arbitration changes. The seat of the arbitration remains the place initially agreed by or on behalf of the parties.

These aspects need to be borne in mind when one comes to the Judge's construction of this policy."

It would be clear from this that the bracketed

portion in the Article was not for deciding upon the

seat of the arbitration, but for the convenience of the

parties in case they find to hold the arbitration

proceedings somewhere else than Seoul, Korea. The part

which has been quoted above from the decision in

Naviera Amozonica Peruana S.A. v. Compania 1

Internationacional De Seguros Del Peru (cited supra)

supports this inference. In that view, my inferences

are that:-

1. a clear language of Articles 22 and 23 of the

Distributorship Agreement between the parties in this

case spell out a clear agreement between the parties

excluding Part I of the Act.

2. the law laid down in Bhatia International v. Bulk

Trading S.A. & Anr. (cited supra) and Indtel Technical

Services Private Ltd. v. W.S. Atkins Rail Ltd. (cited

supra), as also in Citation Infowares Ltd. v. Equinox

Corporation (cited supra) is not applicable to the

present case.

3. Since the interpretation of Article 23.1 suggests

that the law governing the arbitration will be Korean

law and the seat of arbitration will be Seoul in Korea,

there will be no question of applicability of Section

11(6) of the Act and the appointment of Arbitrator in

terms of that provision.

14. In terms of what is stated above, the petition is

dismissed, but without any costs.

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..................................J. (V.S.Sirpurkar) New Delhi;

October 8, 2010.

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