Videocon Industries Ltd vs Union Of India & Anr

Videocon Industries Limited ........Appellant

Versus

Union of India and another ........Respondents

J U D G M E N T

G.S. Singhvi, J.

1. Leave granted.

2. Whether the Delhi High Court could entertain the petition filed by the

respondents under Section 9 of the Arbitration and Conciliation Act, 1996

(for short, "the Act") for grant of a declaration that Kuala Lumpur

(Malaysia) is contractual and juridical seat of arbitration and for issue of a

direction to the arbitral tribunal to continue the hearing at Kuala Lumpur in

2

terms of clause 34 of Production Sharing Contract (PSC) is the question

which arises for consideration in this appeal.

3. Respondent No.1 - Government of India owns petroleum resources

within the area of India's territorial waters and exclusive economic zones.

Respondent No.2 is an arm of the Ministry of Petroleum and Natural Gas.

On 28.10.1994, a PSC was executed between respondent No.1 on the one

hand and a consortium of four companies consisting of Oil and Natural Gas

Corporation Limited, Videocon Petroleum Limited, Command Petroleum

(India) Private Limited and Ravva Oil (Singapore) Private Limited

(hereinafter referred to as "the Contractor") in terms of which the latter was

granted an exploration licence and mining lease to explore and produce the

hydro carbon resources owned by respondent No.1. Subsequently, Cairn

Energy U.K. was substituted in place of Command Petroleum (India) Private

Limited and the name of the Videocon Petroleum Limited was changed to

Petrocon India Limited, which merged the appellant - Videocon Industries

Limited. For the sake of convenience, the relevant clauses of Articles 33, 34

and 35 of the PSC are extracted below:

"33.1 Indian Law to Govern

Subject to the provisions of Article 34.12, this Contract shall

be governed and interpreted in accordance with the laws of

India.

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33.2 Laws of India Not to be Contravened

Subject to Article 17.1 nothing in this Contract shall entitle

the Contractor to exercise the rights, privileges and powers

conferred upon it by this Contract in a manner which will

contravene the laws of India.

34.3 Unresolved Disputes

Subject to the provisions of this Contract, the Parties agree

that any matter, unresolved dispute, difference or claim

which cannot be agreed or settled amicably within twenty

one (21) days may be submitted to a sole expert (where

Article 34.2 applies) or otherwise to an arbitral tribunal for

final decision as hereinafter provided.

34.12. Venue and Law of Arbitration Agreement

The venue of sole expert, conciliation or arbitration

proceedings pursuant to this Article, unless the Parties

otherwise agree, shall be Kuala Lumpur, Malaysia, and shall

be conducted in the English language. Insofar as

practicable, the Parties shall continue to implement the

terms of this Contract notwithstanding the initiation of

arbitral proceedings and any pending claim or dispute.

Notwithstanding the provisions of Article 33.1, the

arbitration agreement contained in this Article 34 shall be

governed by the laws of England.

35.2 Amendment

This Contract shall not be amended, modified, varied or

supplemented in any respect except by an instrument in

writing signed by all the Parties, which shall state the date

upon which the amendment or modification shall become

effective."

4. In 2000, disputes arose between the respondents and the contractor

with respect to correctness of certain cost recoveries and profit. Since the

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parties could not resolve their disputes amicably, the same were referred to

the arbitral tribunal under clause 34.3 of the PSC. The arbitral tribunal fixed

28.3.2003 as the date of hearing at Kuala Lumpur (Malaysia), but due to

outbreak of epidemic SARS, the arbitral tribunal shifted the venue of its

sittings to Amsterdam in the first instance and, thereafter, to London. In its

meeting held on 29.6.2003 at Amsterdam, the arbitral tribunal issued various

directions in Arbitration Case No.1 of 2003. On the next day, the arbitral

tribunal issued similar directions in Arbitration Case Nos.2 and 3 of 2003.

On 19.8.2003, the arbitral tribunal issued revised time schedule for filing of

the statement of claim, reply and counter claim, reply to counter claim,

documents, affidavit of admission and denial of documents in Arbitration

Case No.3 of 2003 and fixed the case for further proceedings to be held at

London on 12.12.2003. By another order dated 30.10.2003, the arbitral

tribunal directed that the hearing of the application filed by the claimants for

taking on record the supplementary claim will take place at London on

15.11.2003, on which date, the following order was passed in Arbitration

Case No.3 of 2003:

"By consent of parties, seat of the Arbitration is shifted to

London.

Parties will deposit Rs.25,000 each as administrative cost

with the Presiding Arbitrator."

5

5. Thereafter, the following proceedings were held by the arbitral

tribunal at London:

(i) 6.2.2004 - Interim Award pronounced in Case No.1 of

2003 pronounced.

(ii) 7.2.2004 - proceedings held in Arbitration Case No.2 of

2003.

(iii) 17.3.2004 - Case No.2 of 2003 fixed for 13-19.5.2004 for

final arguments.

(iv) 17.3.2004 - Case No.3 of 2003 fixed for recording of

evidence from 3.6.2004 to 9.6.2004.

(v) 17.3.2004 - Case No.3 of 2003 fixed for arguments from

20-26.7.2004.

(vi) 27.3.2004 - final arguments rescheduled to 16-20.5.2004 in

Case No.2 of 2003.

(vii) 25.11.2004 - Arbitral Tribunal declared that it will pass

award in Case No.2 of 2003 and further partial award in

Case No.1 of 2003.

(viii) 3.2.2005 - Case No.2 of 2003 fixed for 25-26.2.2005 for

hearing on the application for clarification filed on behalf of

the Government of India.

(ix) 12.3.2005 - The Tribunal declared that it will finalise the

award in Case No.3 of 2003 and cross-objections in Case

No.1 of 2003.

(x) 31.3.2005 - Partial award passed in Case No.3 of 2003.

6. Respondent No.1 challenged partial award dated 31.3.2005 by filing a

petition in the High Court of Malaysia at Kuala Lumpur. On being noticed,

the appellant questioned the maintainability of the case before the High

6

Court of Malaysia by contending that in view of clause 34.12 of the PSC

only the English Courts have the jurisdiction to entertain any challenge to

the award.

7. After filing the petition before the High Court of Malaysia, the

respondents made a request to the tribunal to conduct the remaining arbitral

proceedings at Kuala Lumpur, but their request was rejected vide order

dated 20.4.2006 and it was declared that the remaining arbitral proceedings

will be held in London.

8. At that stage, the respondents filed OMP No.255 of 2006 under

Section 9 of the Act in Delhi High Court for stay of the arbitral proceedings.

They filed another OMP No.329 of 2006 questioning award dated 31.3.2005

on the issue of exchange rate. The appellant objected to the maintainability

of OMP No.255 of 2006 and pleaded that the Courts in India do not have the

jurisdiction to entertain challenge to the arbitral award. The learned Single

Judge of the Delhi High Court overruled the objection of the appellant and

held that the said High Court has the jurisdiction to entertain the petition

filed under Section 9 of the Act. The learned Single Judge extensively

referred to the judgment of this Court in Bhatia International v. Bulk

Trading S.A. (2002) 4 SCC 105 and observed:

"The ratio of Bhatia International, in my understanding, is

that the provisions of Part-I of the Indian Arbitration Act

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would apply to international commercial arbitrations held

outside India, unless the parties by agreement express or

implied, exclude all or any of its provisions.

It is noteworthy that the respondent, while challenging the

jurisdiction of this Court to entertain the present petition, has

not disputed the applicability of Part I of the Indian

Arbitration Act to international commercial arbitrations held

outside India. It is not the case of the respondent that

section 9 of the Indian Arbitrations Act does not apply to

international commercial arbitrations held outside India.

What, in fact, learned senior counsel for the respondent has

sought to contend before this Court is that the parties herein,

by adopting the English Law as the proper law governing

the arbitration agreement, have expressly excluded the

applicability of the Indian Arbitration Act, and

consequently, this Court has no jurisdiction to entertain the

present petition. This contention of the respondent has been

resisted by learned senior counsel for the petitioner on the

ground that English law governs the substantive aspects of

the arbitration agreement, whilst the procedural aspect

thereof is governed by the curial law, that is, the procedural

law of the country where the seat of arbitration is. It is thus

contended by learned senior counsel for the petitioner that

the juridical seat of arbitration being in Kuala Lumpur, it is

the Malaysian laws that would govern the conduct of the

arbitral proceedings. Learned senior counsel for the

respondent has countervailed the said averment of the

petitioner by submitting that London, and not, Kuala

Lumpur is the `designated seat' of arbitration in view of the

order dated 15.11.2003 passed by the Arbitral Tribunal

whereby the Arbitral Tribunal recorded the consent of the

parties and shifted the seat of arbitration to London. In view

of the petitioner having already conceded to London as the

juridical seat of arbitration, it is thus contended by learned

counsel for the respondent that the petitioner cannot know

insist on Kuala Lumpur being the seat of arbitration.

The averments made by the respondent, without prejudice to

the veracity thereof, entail an examination on merit and thus

cannot be accepted at this preliminary stage. Whether the

Courts at Kuala Lumpur or London have the jurisdiction to

decide upon the seat of arbitration squarely hinges on the

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procedural law governing the arbitration agreement.

However, in a peculiar situation such as the present one

where the governing procedural law is yet to be determined,

I am of the view that a question regarding the seat of

arbitration can be best decided by the Court to which the

parties or to which the dispute is most closely connected. It

is important to recall that in the instant case the parties have

expressly stated in Article 33.1 of the PSC that the laws

applicable to the contract would be the laws in force in India

and that the "Contract shall be governed and interpreted in

accordance with the laws of India". These words are wide

enough to engulf every question arising under the contract

including the disputes between the parties and the mode of

settlement. It was in India that the PSC was executed. The

form of the PSC is closely related to the system of law in

India. It is also apparent that the PSC is to be performed in

India with the aid of Indian workmen whose conditions of

service are regulated by Indian laws. Moreover, whilst the

petitioner is an important portfolio of the Government of

India, the respondent is also a company incorporated under

the Indian laws. The contract has in every respect the

closest and most real connection with the Indian system of

law and it is by that law that the parties have expressly

evinced their intention to be bound in all respects. The

arbitration agreement is contained in one of the clauses of

the contract, and not in a separate agreement. In the absence

of any indication to the contrary, the governing law of the

contract or the "proper law" (in the words of Dicey) of the

contract being Indian law, it is that system of law which

must necessarily govern matters concerning arbitration,

although in certain respects the law of the place of

arbitration may have its relevance in regard to procedural

matters.

There is no gainsay that the Courts observe extreme

circumspection whilst affording relief under section 9 of the

Indian Arbitration Act, lest the annals of party autonomy

and sanctity of the arbitral tribunal - the hallmarks of any

arbitration - are jeopardized. It is to be appreciated that the

object underlying the grant of interim measures under

section 9 of the Indian Arbitration Act is to facilitate and sub

serve any ongoing arbitral proceedings.

9

It is much apparent that the disparate stands taken by both

parties qua the seat of arbitration has resulted in a veritable

impasse in the arbitral proceedings in the present case. The

petitioner has brought to our notice that the proceedings

initiated by it at the High Court Kuala Lumpur challenging

the Partial award have been virtually brought to a standstill

owing the objections raised by the respondent on grounds of

jurisdiction. The petitioner has already expressed its

dissidence about the English Court deciding the question of

seat of arbitration for the reason that for the English Court to

assume jurisdiction, it is the place of arbitration which is the

relevant factor. In such a situation, of the Indian Court does

not adjudicate upon the present petition, the arbitral

proceedings between the parties will invariably end in a

stalemate. This, I am afraid, would not only be inimical to

the interests of the parties but also affront to section 9 of the

Indian Arbitration, the underlying object whereof is to sub

serve and facilitate arbitral proceedings."

9. Shri R.F. Nariman, learned senior counsel appearing for the appellant

argued that the impugned order is liable to be set aside because the learned

Single Judge misconstrued and misapplied the judgment of this Court in

Bhatia International v. Bulk Trading S.A. (supra) and erroneously held

that the Delhi High Court has jurisdiction to decide O.M.P. No.255 of 2006.

Learned counsel further argued that the learned Single Judge failed to

appreciate that the reliefs prayed for in O.M.P. No.255 of 2006 could not

have been granted on an application filed under Section 9 of the Act because

stay of arbitral proceedings is beyond the scope of that section. Learned

senior counsel emphasized that Section 5 of the Act expressly bars

intervention of the Courts except in matters expressly provided for in the Act

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and, therefore, even if the petition filed by the respondents under Section 9

could be treated as maintainable, the High Court did not have jurisdiction

over the arbitration proceedings because the same are governed by the laws

of England. Shri Nariman then argued that after having expressly consented

to the shifting of the seat of arbitration from Kuala Lumpur to Amsterdam in

the first instance and effectively taken part in the proceedings held at

London till 31.3.2005, respondent No.1 is estopped from claiming that the

seat of arbitration continues to be at Kuala Lumpur. Learned senior counsel

submitted that the learned Single Judge was not justified in rejecting

objection to the maintainability of the petitions filed by respondent No.1 in

the Delhi High Court merely because the appellant had earlier filed O.M.P.

No.179 of 2003 before the High Court. He submitted that the doctrine of

waiver and acquiescence cannot be pressed into service for deciding the

issue relating to jurisdiction of the Delhi High Court to entertain the petition

filed under Section 9 of the Act. Shri Nariman further submitted that if

respondent No.1 felt aggrieved against partial award it could have filed

petition under Sections 67 and 68 of the English Arbitration Act, 1996.

10. Shri Gopal Subramaniam, learned Solicitor General submitted that as

per the arbitration agreement which is binding on all the parties to the

contract, a conscious decision was taken by them that Kuala Lumpur will be

the seat of any intended arbitration, Indian law as the law of contract and

11

English law as the law of arbitration and the mere fact that the arbitration

was held outside Kuala Lumpur due to the outbreak of epidemic SARS, the

venue of arbitration cannot be said to have been changed from Kuala

Lumpur to London. Learned Solicitor General emphasised that once Kuala

Lumpur was decided as the venue of arbitration by written agreement, the

same could not have been changed except by amending the written

agreement as provided in clause 35.2 of the PSC. He then argued that the

arbitral tribunal was not entitled to determine the seat of arbitration and the

record of proceedings held on 15.11.2003 at London cannot be construed as

an agreement between the parties for change in the juridical seat of

arbitration. He further argued that the PSC was between the Government of

India and ONGC Ltd., Videocon Petroleum Ltd., Command Petroleum

(India) Pvt. Ltd. and Ravva Oil (Singapore) Pvt. Ltd. and, therefore, the

venue of arbitration cannot be treated to have been changed merely on the

basis of the so called agreement between the appellant and the respondents.

Learned Solicitor General submitted that any change in the PSC requires the

concurrence by all the parties to the contract and the consent, if any, given

by two of the parties cannot have the effect of changing the same. He then

argued that every written agreement on behalf of respondent No.1 is

required to be expressed in the name of the President and in the absence of

any written agreement having been reached between the parties to the PSC

to amend the same, the consent given for shifting the physical seat of

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arbitration to London did not result in change of juridical seat of the

arbitration which continues to be Kuala Lumpur. In support of this

argument, the learned Solicitor General relied upon the judgments of this

Court in Mulamchand v. State of Madhya Pradesh (1968) 3 SCR 214 and

State of Haryana v. Lal Chand (1984) 3 SCR 715. In the end, he argued

that the provisions of the English Arbitration Act, 1996 would have applied

only if the seat of arbitration was in England and Wales. He submitted that

London cannot be treated as juridical seat of arbitration merely because the

parties had decided that the arbitration agreement contained in Article 34

will be governed by the laws of England.

11. We have considered the respective submissions and perused the

record.

12. We shall first consider the question whether Kuala Lumpur was the

designated seat or juridical seat of arbitration and the same had been shifted

to London. In terms of clause 34.12 of the PSC entered into by 5 parties, the

seat of arbitration was Kuala Lumpur, Malaysia. However, due to outbreak

of epidemic SARS, the arbitral tribunal decided to hold its sittings first at

Amsterdam and then at London and the parties did not object to this. In the

proceedings held on 14th and 15th October, 2003 at London, the arbitral

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tribunal recorded the consent of the parties for shifting the juridical seat of

arbitration to London. Whether this amounted to shifting of the physical or

juridical seat of arbitration from Kuala Lumpur to London? The decision of

this would depend on a holistic consideration of the relevant clauses of the

PSC. Though, it may appear repetitive, we deem it necessary to mention

that as per the terms of agreement, the seat of arbitration was Kuala Lumpur.

If the parties wanted to amend clause 34.12, they could have done so only by

written instrument which was required to be signed by all of them.

Admittedly, neither there was any agreement between the parties to the PSC

to shift the juridical seat of arbitration from Kuala Lumpur to London nor

any written instrument was signed by them for amending clause 34.12.

Therefore, the mere fact that the parties to the particular arbitration had

agreed for shifting of the seat of arbitration to London cannot be interpreted

as anything except physical change of the venue of arbitration from Kuala

Lumpur to London. In this connection, reference can usefully be made to

Section 3 of the English Arbitration Act, 1996, which reads as follows:

"3.The seat of the arbitration.

In this Part "the seat of the arbitration" means the juridical seat

of the arbitration designated--

(a) by the parties to the arbitration agreement, or

(b) by any arbitral or other institution or person vested by the

parties with powers in that regard, or

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(c) by the arbitral tribunal if so authorised by the parties, or

determined, in the absence of any such designation, having

regard to the parties' agreement and all the relevant

circumstances."

13. A reading of the above reproduced provision shows that under the

English law the seat of arbitration means juridical seat of arbitration, which

can be designated by the parties to the arbitration agreement or by any

arbitral or other institution or person empowered by the parties to do so or

by the arbitral tribunal, if so authorised by the parties. In contrast, there is

no provision in the Act under which the arbitral tribunal could change the

juridical seat of arbitration which, as per the agreement of the parties, was

Kuala Lumpur. Therefore, mere change in the physical venue of the hearing

from Kuala Lumpur to Amsterdam and London did not amount to change in

the juridical seat of arbitration. This is expressly indicated in Section 53 of

the English Arbitration Act, 1996, which reads as under:

"53. Place where award treated as made.

Unless otherwise agreed by the parties, where the seat of the

arbitration is in England and Wales or Northern Ireland, any

award in the proceedings shall be treated as made there,

regardless of where it was signed, despatched or delivered to

any of the parties."

14. In Dozco India P. Ltd. v. Doosan Infracore Co. Ltd. 2010 (9) UJ

4521 (SC), the learned designated Judge while exercising power under

15 Section 11(6) of the Act, referred to the following passage from Redfern v.

Hunter:

"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."

15. The next issue, which merits consideration is whether the Delhi High

Court could entertain the petition filed by the respondents under Section 9 of

the Act. In Bhatia International v. Bulk Trading S.A. (supra), the three-

Judge Bench considered the important question whether Part I of the Act is

applicable to the international arbitration taking place outside India. After

noticing the scheme of the Act and argument of the appellant that Part I of

the Act would apply only to the cases in which the venue of arbitration is in

India, the Court observed:

16

"A reading of the provisions shows that the said Act applies

to arbitrations which are held in India between Indian

nationals and to international commercial arbitrations

whether held in India or out of India. Section 2(1)(f) defines

an international commercial arbitration. The definition

makes no distinction between international commercial

arbitrations held in India or outside India. An international

commercial arbitration may be held in a country which is a

signatory to either the New York Convention or the Geneva

Convention (hereinafter called "the convention country").

An international commercial arbitration may be held in a

non-convention country. The said Act nowhere provides that

its provisions are not to apply to international commercial

arbitrations which take place in a non-convention country.

Admittedly, Part II only applies to arbitrations which take

place in a convention country. Mr. Sen fairly admitted that

Part II would not apply to an international commercial

arbitration which takes place in a non-convention country.

He also fairly admitted that there would be countries which

are not signatories either to the New York Convention or to

the Geneva Convention. It is not possible to accept the

submission that the said Act makes no provision for

international commercial arbitrations which take place in a

non-convention country.

Now let us look at sub-sections (2), (3), (4) and (5) of

Section 2. Sub-section (2) of Section 2 provides that Part I

would apply where the place of arbitration is in India. To be

immediately noted, that it is not providing that Part I shall

not apply where the place of arbitration is not in India. It is

also not providing that Part I will "only" apply where the

place of arbitration is in India (emphasis supplied). Thus the

legislature has not provided that Part I is not to apply to

arbitrations which take place outside India. The use of the

language is significant and important. The legislature is

emphasising that the provisions of Part I would apply to

arbitrations which take place in India, but not providing that

the provisions of Part I will not apply to arbitrations which

take place out of India. The wording of sub-section (2) of

Section 2 suggests that the intention of the legislature was to

make provisions of Part I compulsorily applicable to an

arbitration, including an international commercial

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arbitration, which takes place in India. Parties cannot, by

agreement, override or exclude the non-derogable provisions

of Part I in such arbitrations. By omitting to provide that Part

I will not apply to international commercial arbitrations

which take place outside India the effect would be that Part I

would also apply to international commercial arbitrations

held out of India. But by not specifically providing that the

provisions of Part I apply to international commercial

arbitrations held out of India, the intention of the legislature

appears to be to ally (sic allow) parties to provide by

agreement that Part I or any provision therein will not apply.

Thus in respect of arbitrations which take place outside India

even the non-derogable provisions of Part I can be excluded.

Such an agreement may be express or implied.

If read in this manner there would be no conflict between

Section 1 and Section 2(2). The words "every arbitration" in

sub-section (4) of Section 2 and the words "all arbitrations

and to all proceedings relating thereto" in sub-section (5) of

Section 2 are wide. Sub-sections (4) and (5) of Section 2 are

not made subject to sub-section (2) of Section 2. It is

significant that sub-section (5) is made subject to sub-section

(4) but not to sub-section (2). To accept Mr. Sen's

submission would necessitate adding words in sub-sections

(4) and (5) of Section 2, which the legislature has purposely

omitted to add viz. "subject to provision of sub-section (2)".

However read in the manner set out hereinabove there would

also be no conflict between sub-section (2) of Section 2 and

sub-sections (4) and/or (5) of Section 2.

That the legislature did not intend to exclude the

applicability of Part I to arbitrations, which take place

outside India, is further clear from certain other provisions of

the said Act. Sub-section (7) of Section 2 reads as follows:

"2. (7) An arbitral award made under this Part shall be

considered as a domestic award."

As is set out hereinabove the said Act applies to (a)

arbitrations held in India between Indians, and (b)

international commercial arbitrations. As set out hereinabove

international commercial arbitrations may take place in India

or outside India. Outside India, an international commercial

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arbitration may be held in a convention country or in a non-

convention country. The said Act however only classifies

awards as "domestic awards" or "foreign awards". Mr. Sen

admits that provisions of Part II make it clear that "foreign

awards" are only those where the arbitration takes place in a

convention country. Awards in arbitration proceedings

which take place in a non-convention country are not

considered to be "foreign awards" under the said Act. They

would thus not be covered by Part II. An award passed in an

arbitration which takes place in India would be a "domestic

award". There would thus be no need to define an award as a

"domestic award" unless the intention was to cover awards

which would otherwise not be covered by this definition.

Strictly speaking, an award passed in an arbitration which

takes place in a non-convention country would not be a

"domestic award". Thus the necessity is to define a

"domestic award" as including all awards made under Part I.

The definition indicates that an award made in an

international commercial arbitration held in a non-

convention country is also considered to be a "domestic

award".

(emphasis supplied)

The Court then referred to Section 9 of the Act which empowers the

Court to make interim orders and proceeded to observe:

"Thus under Section 9 a party could apply to the court (a)

before, (b) during arbitral proceedings, or (c) after the

making of the arbitral award but before it is enforced in

accordance with Section 36. The words "in accordance with

Section 36" can only go with the words "after the making of

the arbitral award". It is clear that the words "in accordance

with Section 36" can have no reference to an application

made "before" or "during the arbitral proceedings". Thus it

is clear that an application for interim measure can be made

to the courts in India, whether or not the arbitration takes

place in India, before or during arbitral proceedings. Once an

award is passed, then that award itself can be executed.

Sections 49 and 58 provide that awards covered by Part II

are deemed to be a decree of the court. Thus "foreign

19

awards" which are enforceable in India are deemed to be

decrees. A domestic award has to be enforced under the

provisions of the Civil Procedure Code. All that Section 36

provides is that an enforcement of a domestic award is to

take place after the time to make an application to set aside

the award has expired or such an application has been

refused. Section 9 does suggest that once an award is made,

an application for interim measure can only be made if the

award is a "domestic award" as defined in Section 2(7) of

the said Act. Thus where the legislature wanted to restrict

the applicability of Section 9 it has done so specifically.

We see no substance in the submission that there would be

unnecessary interference by courts in arbitral proceedings.

Section 5 provides that no judicial authority shall intervene

except where so provided. Section 9 does not permit any or

all applications. It only permits applications for interim

measures mentioned in clauses (i) and (ii) thereof. Thus

there cannot be applications under Section 9 for stay of

arbitral proceedings or to challenge the existence or validity

of the arbitration agreements or the jurisdiction of the

Arbitral Tribunal. All such challenges would have to be

made before the Arbitral Tribunal under the said Act."

The three-Judge Bench recorded its conclusion in the following

words:

"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 compulsorily 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."

(emphasis supplied)

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16. In Venture Global Engineering v. Satyam Computer Services

Limited (2008) 4 SCC 190, a two-Judge Bench was called upon to consider

whether the Court of Additional Chief Judge, City Civil Court,

Secunderabad had the jurisdiction to entertain the suit for declaration filed

by the appellant to set aside the award passed by the sole arbitrator

appointed at the instance of respondent No.1 despite the fact that the

arbitrator had conducted the proceedings outside India. The trial Court had

entertained and allowed the application filed by respondent No.1 under

Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC) and rejected

the plaint. The Andhra Pradesh High Court confirmed the order of the trial

Court. Before this Court, reliance was placed by the appellant on the ratio of

Bhatia International v. Bulk Trading S.A. (supra) and it was argued that

the trial Court had the jurisdiction to entertain the suit. On behalf of the

respondents, it was argued that the trial Court did not have the jurisdiction to

entertain the suit because the award was made outside India. The Division

Bench accepted the argument made on behalf of the appellant and observed:

"On close scrutiny of the materials and the dictum laid down

in the three-Judge Bench decision in Bhatia International we

agree with the contention of Mr. K.K. Venugopal and hold

that paras 32 and 35 of Bhatia International make it clear

that the provisions of Part I of the Act would apply to all

arbitrations including international commercial arbitrations

and to all proceedings relating thereto. We further hold that

where such arbitration is held in India, the provisions of Part

I would compulsorily apply and parties are free to deviate to

the extent permitted by the provisions of Part I. It is also

clear that even in the case of international commercial

21

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. We are also of the view

that such an interpretation does not lead to any conflict

between any of the provisions of the Act and there is no

lacuna as such. The matter, therefore, is concluded by the

three-Judge Bench decision in Bhatia International.

The learned Senior Counsel for the respondent based on para

26 submitted that in the case of foreign award which was

passed outside India is not enforceable in India by invoking

the provisions of the Act or CPC. However, after critical

analysis of para 26, we are unable to accept the argument of

the learned Senior Counsel for the respondent. Paras 26 and

27 start by dealing with the arguments of Mr Sen who

argued that Part I is not applicable to foreign awards. It is

only in the sentence starting at the bottom of para 26 that the

phrase "it must immediately be clarified" that the finding of

the Court is rendered. That finding is to the effect that an

express or implied agreement of parties can exclude the

applicability of Part I. The finding specifically states: "But if

not so excluded, the provisions of Part I will also apply to all

`foreign awards'." This exception which is carved out, based

on agreement of the parties, in para 21 (placita e to f) is

extracted below:

"21. ... By omitting to provide that Part I will not

apply to international commercial arbitrations

which take place outside India the effect would be

that Part I would also apply to international

commercial arbitrations held out of India. But by

not specifically providing that the provisions of

Part I apply to international commercial

arbitrations held out of India, the intention of the

legislature appears to be to ally (sic allow) parties

to provide by agreement that Part I or any

provision therein will not apply. Thus in respect of

arbitrations which take place outside India even

the non-derogable provisions of Part I can be

excluded. Such an agreement may be express or

implied."

22

The very fact that the judgment holds that it would be open

to the parties to exclude the application of the provisions of

Part I by express or implied agreement, would mean that

otherwise the whole of Part I would apply. In any event, to

apply Section 34 to foreign international awards would not

be inconsistent with Section 48 of the Act, or any other

provision of Part II as a situation may arise, where, even in

respect of properties situate in India and where an award

would be invalid if opposed to the public policy of India,

merely because the judgment-debtor resides abroad, the

award can be enforced against properties in India through

personal compliance of the judgment-debtor and by holding

out the threat of contempt as is being sought to be done in

the present case. In such an event, the judgment-debtor

cannot be deprived of his right under Section 34 to invoke

the public policy of India, to set aside the award. As

observed earlier, the public policy of India includes -- (a)

the fundamental policy of India; or (b) the interests of India;

or (c) justice or morality; or (d) in addition, if it is patently

illegal. This extended definition of public policy can be

bypassed by taking the award to a foreign country for

enforcement."

17. We may now advert to the judgment of the learned Single Judge of

the Gujarat High Court in Hardy Oil and Gas Limited v. Hindustan Oil

Exploration Company Limited and others (2006) 1 GLR 658. The facts

of that case were that an agreement was entered into between Unocal Bharat

Limited, Hardy Oil and Gas Limited, Netherland B.V. (Hardy),

Infrastructure Leasing and Financial Services Limited, Housing

Development Finance Corporation Limited and Hindustan Oil Exploration

Company Limited on 14.10.1998. The agreement had an arbitration clause.

A dispute having arisen between the parties, the matter was referred to the

arbitral tribunal. During the pendency of the arbitration proceedings, an

23

application was filed by the appellant in the District Court, Vadodara under

Section 9 of the Act. A preliminary objection was raised to the

maintainability of that petition. The learned District Judge accepted the

objection. The learned Single Judge of Gujarat High Court referred to

clause 9.5 of the agreement, which was as under:

"9.5 Governing Law and Arbitration

1. This Agreement (except for the provisions of Clause 9.5.4

relating to arbitration) shall be governed by and construed in

accordance with the substantive laws of India.

2. Any dispute or difference of whatever nature arising

under, out of, or in connection with this Agreement,

including any question regarding its existence, validity or

termination, which the parties are unable to resolve between

themselves within sixty (60) days of notification by one or

more Parties to the other(s) that a dispute exists for the

purpose of this Clause 9 shall at the instance of any Party be

referred to and finally resolved by Arbitration under the

rules of the London Court of International Arbitration

(SLCIA), which Rules (Rules) are deemed to be

incorporated by reference into this clause.

3. The Tribunal shall consist of two arbitrators who shall be

Queen's Counsel, practicing at the English Bar in the

Commercial Division of the High Court, one to be selected

by the Parties invoking the Arbitration clause acting

unanimously and one to be selected by the other

shareholders acting unanimously, and one umpire who shall

also be a Queen's Counsel, practicing at the English Bar in

the Commercial Division of this High Court. If the parties

are unable to agree on the identity of the umpire within 15

days from the day on which the matter is referred to

arbitration, the umpire shall be chosen and appointed by

LCIA. Notwithstanding Article 3.3 of the Rules, the Parties

agree that LICA may appoint a British umpire. No arbitrator

shall be a person or former employee or agent of, or

consultant or counsel to, any Party or any Associated

24

Company or any Party or in any way otherwise connected

with any of the Parties.

4. The place of arbitration shall be London and the language

of arbitration shall be English. The law governing arbitration

will be the English law.

5. Any decision or award of an arbitral tribunal shall be final

and binding on the Parties."

The learned Single Judge referred to various judgments of this Court

including Bhatia International v. Bulk Trading S.A. (supra), Shreejee

Traco (I) Pvt. Ltd. v. Paperline International Inc. (2003) 9 SCC 79,

National Thermal Power Corporation v. Singer Company (1992) 3 SCC

551 and upheld the order of the learned District Judge by observing that in

terms of clause 9.5.4 of the agreement, the place of arbitration was London

and the law governing arbitration was the English law. The learned Single

Judge referred to paragraph 32 of the judgment in Bhatia International v.

Bulk Trading S.A. (supra) and observed that once the parties had agreed to

be governed by any law other than Indian law in cases of international

commercial arbitration, then that law would prevail and the provisions of the

Act cannot be invoked questioning the arbitration proceedings or the award.

This is evident from paragraph 11.3 of the judgment, which is extracted

below:

"However, their Lordships observed in Para.32 that 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

25

provisions. In that case 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 would not apply. Thus, even

as per the decision relied upon by learned advocate for the

appellant, if the parties have agreed to be governed by any

law other than Indian law in cases of international

commercial arbitration, same would prevail. In the case on

hand, it is very clear even on plain reading of Clause 9.5.4

that the parties' intention was to be governed by English law

in respect of arbitration. It is not possible to give a narrow

meaning to this clause as suggested by learned Senior

Advocate Mr. Thakore that it would apply only in case of

dispute on Arbitration Agreement. It can be interpreted only

to mean that in case of any dispute regarding arbitration,

English law would apply. When the clause deals with the

place and language of arbitration with a specific provision

that the law governing arbitration will be the English law,

such a narrow meaning cannot be given. No other view is

possible in light of exception carved out of Clause 9.5.1

relating to arbitration. Term Arbitration, in Clause 9.5.4

cannot be taken to mean arbitration agreement. Entire

arbitral proceedings have to be taken to be agreed to be

governed by English law."

18. In our opinion, the learned Single Judge of Gujarat High Court had

rightly followed the conclusion recorded by the three-Judge Bench in Bhatia

International v. Bulk Trading S.A. (supra) and held that the District Court,

Vadodara did not have the jurisdiction to entertain the petition filed under

Section 9 of the Act because the parties had agreed that the law governing

the arbitration will be English law.

19. In the present case also, the parties had agreed that notwithstanding

Article 33.1, the arbitration agreement contained in Article 34 shall be

26

governed by laws of England. This necessarily implies that the parties had

agreed to exclude the provisions of Part I of the Act. As a corollary to the

above conclusion, we hold that the Delhi High Court did not have the

jurisdiction to entertain the petition filed by the respondents under Section 9

of the Act and the mere fact that the appellant had earlier filed similar

petitions was not sufficient to clothe that High Court with the jurisdiction to

entertain the petition filed by the respondents.

20. In the result, the appeal is allowed. The impugned order is set aside

and the petition filed by the respondents under Section 9 of the Act is

dismissed.

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

[R.V. Raveendran]

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

[G.S. Singhvi]

New Delhi

May 11, 2011.