CHALLENGING THE FOREIGN ARBITRATRION AWARD IN INDIA

[Mr. M. GOVINDARAJAN]

In ‘Eitizen Bulk A/S V. Ashapura Minechem Limited and another’ – [2016 (5) TMI 770 - SUPREME COURT] the appellant and the respondent made a contract of Affreighment on 18.01.2008.  The appellant made this contract as charterers for shipment of bauxite from to China.  The agreement contains an arbitration clause vide clause No. 28 which provides that any dispute arising under this agreement is to be settled in London. 

• One arbitrator is to be employed by the Charterers;
• One by the owners

and in case they shall not agree then shall appoint one umpire whose decision shall be final and binding.  The Arbitrators and Umpire are to be commercial shipping men.  The English Law is to apply to the arbitration proceedings.  If the dispute amount is less than ₹ 50,000/- the same shall be settled by arbitration to be conducted in accordance with Small Claims Procedure of the L.M.A.A.,

Disputes have arises between the parties.  The matter was referred to arbitration by a sole Arbitrator.  The Arbitration was held in London according to English Law.  The Arbitrator held that the respondent was liable to pay a sum of US$ 36,306,104 together with compound interest @ 3.75% per annum.  In addition they were directed to pay US$ 74,135 together with compound interest @ 3.75% per annum.  Another sum of 90,233.66 pounds was awarded payable with interest @ 2.5% per annum.

The respondent, before the commencement of arbitration filed a suit along with an application for injunction before the Civil Court, Jam-khambalia, Gujarat with the prayer that the contract and the arbitration clause contained therein was illegal, null and void, ab initio.  Though interim injunction was granted the Court dismissed the suit for want of jurisdiction.  The appeal filed by the respondent was also dismissed by the Gujarat High Court.

Having failed to stall the Arbitration proceedings and failed in the Arbitration proceedings, the respondent resorted to Section 34 of the Arbitration Act, (‘Act’ for short) and filed objections in India in respect of the award passed in London before the District Court in Jamnagar with the prayer to set aside the foreign award made in London.  The District Court dismissed the application for injunction seeking restraint of enforcement of the award.

The appellant filed for enforcement of the award in the countries of Netherlands, USA, Belgium and UK.  The Courts in various jurisdictions have held the award to be enforceable as a judgment of the Court.

The appellant filed petition under Sections 47 to 49 of the Part II of the Act for enforcing the award before the Bombay High Court,  on the ground that the respondent was carrying on business within the jurisdiction of the Court and has its registered office and corporate office and assets within the territorial jurisdiction of the Court.   The respondent claimed that since proceedings had already been initiated in Gujarat High Court, the Bombay High Court had no jurisdiction in the matter by virtue of Section 42 of the Act.  The Bombay High Court rejected the contentions of the respondent and allowed the petition of the appellant for enforcing the foreign award.

Against the rejection of the application for injunction the respondent filed a writ petition before the High Court, Gujarat with the prayer to set aside the order of the District Judge and for a direction not to enforce the execution of the award turned into judgment.  The respondent contended that the award cannot be enforced or executed since their objections under Section 34 were pending.   The appellant objected the same.  The Single Judge set aside the order and remanded the matter to the District for fresh decision in accordance with law.

The appellant questioned the very jurisdiction of a Court in India to decide objections under Section 34 of the Act in respect of a foreign award by way of a writ petition.   Both parties went for appeal before the Division Bench against the order of the Single Judge.  The Division Bench held that the respondent is entitled to challenge the foreign award under Section 34 of Part I of the Act.  The Division Bench further held that the territorial jurisdiction is a mixed question of fact and law and is required to be decided by the trial court on the basis of the plaint and written statement and evidence before it.  The said judgment was questioned in Supreme Court.

The Supreme Court noted that since proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 are pending before the Board for Industrial and Financial Reconstruction (BIFR), though the Bombay High Court was ordered for execution of the award, it has held that Eitizen would not be entitled to take any step in execution of the award or seek any relief in violation of Section 22 of SICA Act without permission from the BIFR.

The Supreme Court framed the question to decide is whether Part I of the Arbitration Act is excluded from its operation in case of a foreign award where the arbitration is not held in India and is governed by foreign law.  The appellant submitted that clause 28 of the agreement clearly indicated that any dispute under the contract is to be settled and referred to Arbitration in London.  Therefore the arbitration proceedings shall be conducted in accordance with the English law and the seat of Arbitration will be at London.

The Supreme Court thought that the clause evinced such an intention by providing that the English Law will be applying to the Arbitration.    The said clause expressly provides that Indian Law or any other law will not apply.  Any objection to the conduct of the arbitration or the award will also be governed by English law.  This implies that the challenge to the award must be in accordance with English Law.  There is thus an express exclusion of the applicability of Part I to the instant Arbitration by clause 28.  The said clause further provides that there shall be two Arbitrators, one appointed by the Charterers and one by the owners and they shall appoint an Umpire, in case there is no agreement.  The Supreme Court pointed that the Indian Act makes no provision for Umpires and the intention is clearly to refer to an Umpire contemplated by Section 21 of  the English Arbitration Act, 1996.  Sections 67, 68 and 69 of the English Arbitration act provide for challenge to an award on grounds stated therein.  The intention is thus clearly to exclude the applicability of Part I to the instant Arbitration proceedings.

The Supreme Court further held that where the parties choose a judicial seat of arbitration outside India and provide that the law which governs arbitration will be a law other than Indian law, part I of the Act would not have any application and therefore, the award debtor would not be entitled to challenge the award by raising objections under Section 34  before a Court in India.  A court of India could not have jurisdiction to entertain such objection under Section 34 in such a case.

As conclusion we may say that parties may well choose a particular place of arbitration precisely because its lex arbitri is one which they find attractive.  Nevertheless once a place of arbitration has been choose, it brings with its own law.   If that law contains provisions that are mandatory so far as arbitration are concerned, those provisions must be obeyed.