M/S. Indtel Technical Services Pvt.Ltd vs W.S. Atkins Plc

an exclusive basis for jointly preparing and

submitting their tender for work associated with

the designing, manufacturing, supply, 2

installation, test and commissioning contract

for the Indian Railways Crashworthiness Project.

Pursuant thereto the parties jointly prepared

and submitted a tender signed by both the

parties on 30.9.2002 in response to a bid

invitation by RITES Limited, a Public Sector

Undertaking of the Ministry of Railways, on

30.9.2002.

2. After submission of such bid the parties were

invited to call upon the respondent on

29.10.2002 for contract negotiation in India,

but without any valid or justifiable reason the

respondent terminated the Memorandum on

12.11.2002 and on 15.11.2002 unilaterally

withdrew the joint bid submitted to RITES

without any reference to the applicant.

According to the applicant, some of the other

terms of the Memorandum dated 11.6.2002 were

also breached by the respondent which impelled

the applicant to address a letter to the

respondent on 23.6.2003 calling upon it to 3

explain the various defaults committed by it. A

request was also made to the respondent to enter

into a dialogue to work out the fair level of

compensation for the losses suffered by the

applicant on account of such breach. The

allegations contained in the letter were denied

by the respondent by its reply dated 20.8.2003.

Several letters were thereafter exchanged

between the parties culminating in a legal

notice being sent on behalf of the applicant to

the respondent to compensate the applicant for

the losses incurred by it on account of the

unlawful acts of the respondent. The response of

the respondent to the legal notice was one of

denial and assertion that the respondent had

acted fairly and properly in the matter.

3. Since all attempts made by the applicant,

including resolution of the dispute through an

alternate dispute resolution process and

mediation, proved to be abortive, the applicant

ultimately filed the present application for the

appointment of a sole Arbitrator under Section 4 11(9) of the Arbitration Act, 1996, as per

clause 13(2) of the Memorandum of Understanding

dated 11th June, 2002. Inasmuch as, one facet of

the dispute between the parties involves the

wording of the said clause of the Agreement, the

same is reproduced hereinbelow for the sake of

reference:

"CLAUSE 13 - SETTLEMENT OF DISPUTES

13.1. This Agreement, its construction, validity and performance shall be governed by and constructed in accordance with the laws of England and Wales;

13.2 Subject to Clause 13.3 all disputes or differences arising out of, or in connection with, this Agreement which cannot be settled amicably by the Parties shall be referred to adjudication;

13.3 If any dispute or difference under this Agreement touches or concerns any dispute or difference under either of the Sub Contract Agreements, then the Parties agree that such dispute or difference hereunder will be referred to the adjudicator or the courts as the case may be appointed to decide the dispute or difference under the relevant Sub Contract Agreement and the Parties hereto agree to abide by 5

such decision as if it were a decision under this Agreement."

4. On behalf of the appellant company, Mr. S.C.

Gupta, learned advocate, submitted that although

in the Memorandum the law which was to apply to

the construction and performance of the

agreement had been mentioned, the venue for such

adjudication or arbitration had not been

stipulated in the agreement since the choice of

venue has obviously been left to the parties. It

was submitted that primarily two questions were

required to be answered in this matter, namely,:

(i) Whether clauses 13.2 and 13.3 of the Memorandum of Understanding can be construed to be an arbitration agreement;

and (ii) Whether having regard to clause 13.1 of the Memorandum of Understanding indicating that the construction,

validity and performance of the agreement would be governed by and constructed in accordance with laws of England and Wales, this Court would have jurisdiction to appoint an Arbitrator under Section 11 of the Arbitration Act, 1996.

6 5. It was submitted that whenever the jurisdiction

of the domestic courts is invoked, the courts

have to look to their own laws to see whether

they have jurisdiction to take up such matter.

It was contended that since in the instant case

an application had been made under Section 11 of

the Arbitration and Conciliation Act, 1996, it

is the said law which has to be treated as the

relevant Indian Municipal Law applicable to the

instant case.

6. Mr. Gupta urged that a three-Judge Bench of this

Court had in Bhatia International vs. Bulk

Trading S.A, [2002 (4) SCC 105] held that Part-I

of the Arbitration and Conciliation Act, 1996,

applies both to domestic and international

arbitrations, irrespective of whether the seat

of arbitration is in India or not. It was urged

that while the present Memorandum was

undoubtedly an International Commercial

Arbitration, Part-I of the aforesaid Act would

still apply thereto and this Court would have 7

jurisdiction to entertain the application made

under Section 11 of the aforesaid Act.

7. It was also urged that, although, the parties

had decided that the law relating to the working

or an understanding of the Agreement was to be

the law of England and Wales, there is nothing

in the Memorandum to warrant a conclusion that

the seat of arbitration is to be outside India

in the Courts of England and Wales or that the

parties had mutually excluded the application of

any of the provisions of Part-I of the aforesaid

Act to the Agreement. It was also submitted

that by virtue of the Memorandum, the parties

thereto had not ousted the jurisdiction of this

Court nor had any express intention to that

effect been included in the said Memorandum.

8. Mr. Gupta contended that even with reference to

the laws of England and Wales, which is the

proper law governing the Arbitration Agreement,

the Courts of England and Wales do not have 8

exclusive jurisdiction to appoint an Arbitrator

in the instant dispute having regard to the

provisions of Sections 2(f) and 2(8) of the

Arbitration and Conciliation Act, 1996.

Referring to some of the provisions of the

(English) Arbitration Act, 1996, and, in

particular, Section 2 thereof, Mr. Gupta

submitted that some of the sections of the Act

would apply to arbitration proceedings even if

the seat of arbitration is outside England and

Wales or the Northern Islands, or if no seat is

designated or determined, as in the instant

case. According to Mr. Gupta, even though the

present Arbitration Agreement was to be governed

by the Laws of England and Wales, according to

the choice of the parties to the Memorandum, the

Venue for holding the arbitration did not have

to be situated within the jurisdiction of the

Courts of England and Wales. Mr. Gupta urged

that an almost identical situation had arisen in

the case of Bhatia International (supra), where

an application made by the respondent therein to 9

the Third Additional District Judge, Indore,

M.P., was under Section 9 of the Arbitration and

Conciliation Act, 1996, for grant of certain

interim reliefs to restrain the parties from

alienating, transferring and creating third

party rights, disposing of, dealing with and/or

selling their business assets and properties

till the matter was decided by the Court.

Bhatia International raised a plea as to the

maintainability of the said application which

was dismissed by the learned Additional District

Judge upon holding that the Court at Indore had

jurisdiction to entertain the application filed

by Bulk Trading S.A. under Section 9 of the

above Act and that the same was maintainable.

9. The order of the learned Third Additional

District Judge was challenged before the M.P.

High Court, Indore Bench, by Bhatia

International by way of a writ petition, which

was also dismissed by the High Court. The

Judgment and Orders, both of the learned 10

Additional District Judge, Indore, and the

Madhya Pradesh High Court, Indore Bench, were

challenged before this Court by Bhatia

International and it was submitted on its behalf

that Part-I of the Arbitration and Conciliation

Act, 1996, applies only to arbitrations where

the place of arbitration is in India, as has

been clearly indicated in Sub-section (2) of

Section 2 of the said Act. In the said case, it

was also urged on behalf of Bhatia International

that Section 2(i)(f) of the Arbitration and

Conciliation Act, 1996, defines "International

Commercial Arbitration" and that such

arbitration could take place either in India or

outside India. The submissions made on behalf

of Bhatia International were accepted by this

Court upon a finding that, although, Section 2

(2) of the Arbitration and Conciliation Act,

1996, provides that Part-I of the Act would

apply where the place of arbitration is in

India, it did not provide that Part-I would not

apply where the place of arbitration is not in 11

India. It was also held that it was nowhere

provided that Part-I of the aforesaid Act would

not apply to arbitrations taking place outside

India. Accordingly, this Court concluded as

follows :-

"To conclude, we hold that the provisions of Part-I would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India the provisions of Part-I would compulsory apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part-I. 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."

10. Mr. Gupta submitted that all contracts which

provide for arbitration and contain a foreign

element may involve three relevant systems of

law, which include the law governing the

substantive contract or the proper law of 12

contract, or the law governing the agreement to

arbitrate, which is the proper law of the

arbitration agreement, or the law governing the

conduct of the arbitration proceedings which is

the curial law. It was submitted that in the

present case, the parties had mutually chosen

the law of England and Wales to be the proper

law of contract and it could, therefore, be

contended that the proper law of the arbitration

agreement is also the law of England and Wales.

He, however, urged that there was nothing in the

agreement to indicate that the parties had

agreed as to the venue of arbitration. He

submitted that the law which was to govern the

conduct of arbitration or the curial law, not

having been indicated by the parties, the same

could be determined only by the Arbitrator. He

submitted that when the Arbitrator to be

appointed in the instant case, chooses the seat

of arbitration, the law relating thereto will

govern the law of the conduct of the arbitration

proceedings. Mr. Gupta urged that the above 13

proposition finds full support in the decision

of this Court in National Thermal Power

Corporation vs. Singer Company & Anr. [1992 (3)

SCC 551] where in paragraph 28, it has been

observed that questions relating to the

jurisdiction of the Arbitrator to decide a

particular issue relating to the continuance of

an arbitration agreement, its validity, effect

and interpretation are determined exclusively by

the proper law of the arbitration agreement.

The procedural power and duties of the

Arbitrator are regulated in accordance with the

rules chosen by the parties to the extent that

those rules are applicable and sufficient and

are not repugnant to the procedural law and

practice of the seat of arbitration. It was

further observed that the concept of party

autonomy in international contracts is respected

by all systems of law so far as it is not

incompatible with the proper law of the contract

or the mandatory procedural rules of the place 14

where the arbitration is agreed to be conducted

or any overriding public policy.

11. It was submitted that since in the instant case

the seat of arbitration would have to be

determined by the Arbitrator, once he was

appointed, the question as to which law would

govern the conduct of the arbitration

proceedings should not be decided at this stage.

12. On behalf of the appellant it was lastly urged

that clauses 13.2 and 13.3 of the Memorandum of

Understanding clearly indicates that the

intention of the parties to the said Memorandum

of Understanding was to have their disputes

resolved by arbitration although the expression

used in the said clauses is "adjudication".

According to Mr. Gupta, use of the said

expression did not detract from the intention of

the parties to have their disputes resolved by

arbitration. He submitted that the expression

"adjudication" had been defined in various legal 15

dictionaries to mean the act of adjudicating;

the process of trying and determining a case

judicially; the application of the law to the

facts and an authoritative declaration of the

result. Learned counsel submitted that in

Black's Law Dictionary the expression

"adjudication" is defined as being the legal

process of resolving of a dispute or the process

of judicially deciding a case. Learned counsel

submitted that the expressions `adjudicate' and

`adjudge' have also been defined to mean to rule

upon and award judicially.

13. Mr. Gupta urged that having regard to the

decision of this Court in Bhatia International

(supra), it is beyond question that Part-I of

the Arbitration Act, 1996, would also be

attracted to the instant case and the

application made under Section 11 of the said

Act was, therefore, maintainable. 16

14. Mr. Gupta's submissions that although the proper

law of the arbitration agreement had been

stipulated in Clause 13.1 to be the laws of

England and Wales, such provision did not

automatically vest jurisdiction only on the

Courts of England and Wales to deal with and

decide all issues arising out of arbitration

agreement, was denied by Mr. Parag Tripathi,

learned Senior counsel for the respondent. It

was urged that an application under Section 11

of the Arbitration and Conciliation Act, 1996,

is nothing but a step in performance of the

arbitration clause and since the performance of

the Memorandum is to be governed by the laws of

England and Wales, according to the choice of

the parties, it is the procedural law of England

and Wales which has to be applied to the

performance of the arbitration agreement as

well. Referring to the decision in the National

Thermal Power Corporation case (supra), which

had also been referred to by Mr. Gupta, Mr.

Tripathi submitted that in the said decision the 17

views of jurists such as Dicey, Mustill and Boyd

and Russel had been reiterated in support of the

contention that the overriding principle is that

the courts of the country, whose substantive

laws govern the arbitration agreement, are

competent courts in respect of all matters

arising under the arbitration agreement, and the

jurisdiction exercised by the courts of the seat

of arbitration is merely concurrent and not

exclusive and strictly limited to the matter of

procedure.

15. Mr. Tripathy submitted that the decision in the

aforesaid case supports the proposition that

when the parties to the contract, do not express

any choice with regard to the law governing the

contract or the arbitration agreement in

particular, a presumption has to be drawn that

the parties intended that the proper law of the

contract as well as the law governing the

arbitration agreement would be the same as the

law of the country which is the seat of 18

arbitration. But when the parties expressly

choose the proper law of the contract, as in the

instant case, in the absence of a clear

intention such law must govern the arbitration

agreement also though it is collateral and

ancillary to the main contract.

16. Mr. Tripathi urged that similarly where the seat

of arbitration is indicated, then, unless there

is an indication to the contrary, it will be

deemed that the place where the proper law

governing the arbitration proceedings is in

force is the place chosen by the parties to be

the seat of arbitration as well. Learned

counsel referred to the decision of the Court of

Appeal in Naviera Amazonica Peruana S.A. vs.

Compania internacional De Seguros Del Peru,

reported in Lloyd's Law Reports [1988 (Vol.I)

116), wherein it was held that while

interpreting an arbitration clause the use of

the phrase "arbitration agreeing to the

conditions of laws of London" means that the 19

arbitration was to be held in London, not by the

implication of some additional term, but by

giving to those words their ordinary commercial

meaning.

17. Mr. Tripathi submitted that in this case also

since the parties had stipulated the law which

was to govern the Memorandum, but had not

indicated the seat of arbitration, in keeping

with the consistent views expressed by the

Courts and jurists, it must be held that the

seat of arbitration must necessarily be the

Courts of England and Wales. Mr. Tripathy

submitted that consequently this court has no

jurisdiction to entertain the applicant's

petition under Section 11(9) of the Arbitration

and Conciliation Act, 1996, and the same was

liable to be dismissed.

18. Mr. Tripathy also urged that the expression "may

be referred to arbitration" or "can be referred

to arbitration" have consistently been held by

the Indian Courts to be antithetical to the 20

concept of arbitration. Reference was made to

various decisions on this count as well.

Regarding use of the expression "adjudication",

Mr. Tripathy submitted that a final decision

arrived in such adjudication proceedings would

not make it a valid arbitration agreement. He

urged that unless it is the clear intention of

the parties that arbitration is to be the only

forum for adjudication of disputes, the

requirement of a valid arbitration clause is not

fulfilled.

19. In support of his aforesaid submission, Mr.

Tripathy referred to decisions of various High

Courts and also the decision of this Court in

Jagdish Chander v. Ramesh Chander, [2007 (5) SCC

719], wherein while dealing with the provisions

and scope of Sections 7, 8 and 11 of the

Arbitration and Conciliation Act, 1996, with

reference to Section 89 of the Code of Civil

Procedure, this Court held that the existence of

an arbitration agreement, as defined under 21 Section 7 of the above Act, is a condition

precedent for exercise of power for appointment

of the Arbitrator/Arbitral Tribunal, under

Section 11 of the aforesaid Act. Mr. Tripathy

pointed out that while arriving at such

conclusion, this Court laid down certain tests

to decide as to what would constitute an

arbitration agreement, namely, (i) that the

intention of the parties to enter into an

arbitration agreement would have to be gathered

from the terms of the Agreement; (ii) that

even if the words "arbitration" and "arbitrator"

are not used in a clause relating to settlement

of disputes with reference to the process of

such agreement or with reference to the private

tribunal which is to adjudicate upon the

disputes, it does not detract from the clause

being an arbitration agreement if it has the

attributes and elements of an arbitration

agreement. Conversely, the mere use of the

words `arbitration' or `arbitrator" in a clause

will not make it an arbitration agreement, if it 22

requires or contemplates a further or fresh

consent of the parties for reference to

arbitration.

20. Mr.Tripathy submitted that any ambiguity and

vagueness in the arbitration clause would render

the same invalid as had been held by the

Calcutta High Court in (i) ITC Classic Finance

Ltd. vs. Grapco Mining and Co. Ltd, [AIR 1997

Cal. 397] and (ii) Teamco Private Ltd. vs.

T.M.S. Mani, [AIR 1967 Cal. 168]. Mr. Tripathy

urged that both clauses 13.2 and 13.3 are

somewhat vague on the question of reference and

the finality of the decision in the adjudication

proceedings.

21. It was contended that the expressions

"construction, validity and performance" used in

clause 13.3 of the Memorandum is a decisive

indication that the intention of the parties was

to give exclusive jurisdiction to the procedural 23

law of England and Wales even in respect of the

appointment of an Arbitrator.

22. In concluding, Mr. Tripathy attempted to

distinguish the decision in Bhatia

International's case (supra) by submitting that

the law laid down in the said decision was not

attracted to the facts of the instant case as in

the said decision it had only been held that

Part-I of the Arbitration and Conciliation Act,

1996, would apply to International Commercial

Arbitrations unless there was a specific

agreement either expressed or implied to the

contrary. Mr. Tripathy contended that since the

parties had clearly expressed their intention in

clause 13(i) of the Memorandum of Understanding

that the law of England and Wales was to be the

proper law in respect of the Memorandum, it must

necessarily follow that it was the intention of

the parties that the arbitral proceedings should

also be subject to the jurisdiction of the

Courts of England and Wales.

24

23. It appears that after the conclusion of the

hearing of this case, another decision of the

House of Lords in Lesotho Highlands Development

Authority vs. Inpregilo SpA, [2005 UKHL 43],

came to the notice of the respondent where a

reference to the juridical seat of the

arbitration had been made and it was observed

that the determination of the juridical seat of

arbitration as England is the gateway to the

powers of the Tribunal spelt out in many

provisions of the English Arbitration Act, 1996.

24. Although, the matter has been argued at great

length and Mr. Tripathy has tried to establish

that the decision of this Court in Bhatia

International's case (supra) is not relevant for

a decision in this case, I am unable to accept

such contention in the facts and circumstances

of the present case. It is no doubt true that

it is fairly well-settled that when an

arbitration agreement is silent as to the law 25

and procedure to be followed in implementing the

arbitration agreement, the law governing the

said agreement would ordinarily be the same as

the law governing the contract itself. The decisions cited by Mr. Tripathy and the views

of the jurists referred to in the National Thermal

Power Corporation case (supra) support such a

proposition. What, however, distinguishes the

various decisions and views of the authorities in

this case is the fact that in the Bhatia

International case (supra) this court laid down the

proposition that notwithstanding the provisions of

Section 2(2) of the Arbitration and Conciliation

`Act, 1996, indicating that Part-I of the said Act

would apply where the place of arbitration is in

India, even in respect of International Commercial

agreements, which are to be governed by laws of

another country, the parties would be entitled to

invoke the provisions of Part-I of the aforesaid Act

and consequently the application made under Section

11 thereof would be maintainable.

26

25. The decision in the Bhatia International case

(supra) has been rendered by a Bench of Three

Judges and governs the scope of the application

under consideration, as it clearly lays down

that the provisions of Part-I of the Arbitration

and Conciliation Act, 1996, would be equally

applicable to International Commercial

arbitrations held outside India, unless any of

the said provisions are excluded by agreement

between the parties expressly or by implication,

which is not so in the instant case.

26. Furthermore, from the wording of clause 13.2 and

clause 13.3 I am convinced, for the purpose of

this application, that the parties to the

Memorandum intended to have their disputes

resolved by arbitration and in the facts of this

case the petition has to be allowed.

27. Accordingly, Justice B.N. Srikrishna, is

appointed as sole arbitrator to arbitrate upon 27

the disputes which have arisen betweens the

parties hereto as set out in sub-paragraphs (a)

to (h) of paragraph 19 of the present

application. The sole Arbitrator will be

entitled to decide upon the procedure to be

adopted in the arbitral proceedings, the

sittings of the arbitral proceedings and to also

settle his fees in respect thereof. The sole

Arbitrator shall make positive efforts to

complete the arbitration proceedings and pass

his award with expedition.

....................................J.

(ALTAMAS KABIR)

New Delhi

Dated: 25.08.2008