TMI Blog1995 (2) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration of the elder brother of petitioner No. 1 and respondent No. 1 for the purpose of dividing their joint businesses and properties in India and the U.S.A. The appointment was made by letter called "first submission agreement". Arbitration agreement came to be entered into between the parties on November 17, 1989, called "second submission agreement". It seems that respondents Nos. 1 and 2 tried to stall the arbitration proceedings by going before the Supreme Court of the State of New York, County of Nassau, U.S.A., but failed and an order came to be passed on March 12, 1990. Thereafter, the parties agreed on March 20, 1990, to draw four packages of those properties and business in India and the U.S.A. Package A deals with the U.S.A. properties and businesses. Package A-l deals with U.S. note which provided for payment in U.S. dollars for relinquishing the share and interest in jointly held U.S. businesses and properties. Package B deals with Indian businesses and properties. Package B-l consists of Indian note which provided for payment in Indian rupees paid to the party relinquishing the share and interest in jointly held Indian businesses and properties. It was agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares of private companies from respondents Nos. 1 and 2 to the petitioners. The main contentions raised on behalf of the respondents challenging the enforceability of the award are : ( i )It is not a foreign award because it does not deal with differences which can be considered as "commercial" in nature. ( ii )It cannot be considered as "foreign award" as it deals with differences between Indians though NRI, and it is not between the citizens of two different countries, i.e., one India and the other U.S.A. ( iii )The award is not enforceable as it involves violation of Chapter XXC of the Income-tax Act, 1961. The flat in Urvashi building is worth millions of rupees and hence enforcement of the award without the necessary no objection certificate is against public policy. ( iv )The award seeks to transfer shares in Indian companies to NRIs without the permission of the Reserve Bank of India, and, therefore, violates the Foreign Exchange Regulation Act, 1973 ("the FERA", for short), and so is against the public policy. ( v )The award has been made a rule of the court in the U.S.A. and is, therefore, executable as a decree. The award has merged in a foreign judgment whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red as "commercial" in nature. It is submitted by learned counsel for the respondents that this cannot be called a "foreign award" as it does not relate to a commercial relationship between the parties. It was relating to a mere domestic relationship between the parties. It is contended on behalf of the petitioners that essentially the relationship between the parties was commercial. It is immaterial that petitioner No. 1 and respondent No. 1 are brothers and that cannot make the award domestic. The parties wanted to resolve the disputes which arose in the course of business and wanted mainly to divide the businesses and incidentally to divide the properties and separate for good. A lot of debate has taken place at the Bar about this point and so I deal with it in a little detailed manner. It is averred in the petition that the petitioners and the respondents have jointly carried on certain business in India and the U.S.A. and have jointly held properties in the U.S.A. and India. Several businesses were carried on by the parties in the two countries through the agency of partnership firms, private limited companies, association of persons and private trusts. The settlement agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognition and Enforcement of Foreign Arbitral Awards". This was adopted to increase the effectiveness of arbitration in settlement of private law disputes by securing uniformity in the diverse national arbitration laws in the area of recognition and enforcement of foreign awards. This was to remedy the defects in the Geneva Convention of 1927, which hampered the speedy settlement of disputes. This came to be ratified by India in 1960. India has embodied the provisions of the Convention in the Act of 1961. The definition of foreign award contained in section 2 is as follows : "2. Definition. In this Act, unless the context otherwise requires, foreign award means an award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960 ( a )in pursuance of an agreement in writing for arbitration to which the Convention set forth in the Schedule applies, and ( b )in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made, may, by notification in the Official Gazette, declare to be territori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce by defendants Nos. 1 and 2. Three agreements were entered into between the parties. In the said case, it was held (Mridul J.) an agreement must be commercial not as normally understood but by virtue of the provisions of law in force in India. There must be some legal provision which expressly makes provision for recognising a legal relationship as commercial and in the absence of such legislative provision section 2 of the 1961 Act could not be invoked. It is necessary that there must be some legal provision, which would specify or indicate that a legal relationships were to be considered as commercial for the purpose of the 1961 Act. First this is not the contention here. Further, this view came to be overruled by the Division Bench of this court in the judgment in European Grain and Shipping Ltd. v. Bombay Extractions Pvt. Ltd., AIR 1983 Bom 36. It came to be held that the mere use of the word "under" preceding the words "the law in force in India" would not necessarily mean that one has to find a statutory provision or a provision of law which specifically deals with the subject of the particular legal relationship being commercial in nature. This phrase came to be inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should, therefore, be construed broadly having regard to the manifold activities which are an integral part of international trade today". It was held that the relationship between R. M. Investment and Boeing was commercial. The word "commercial" which undoubtedly, is derived from the term "commerce" and the term "commerce" is a term of largest import. It embraces every phase of commercial and business activity and intercourse including the transportation, purchase, sale, exchange of commodities and supply of information and technical assistance between subjects of different States. Even Stroud s Judicial Dictionary of Words and Phrases (fourth edition), volume I, gives one of the meanings of "commercial" as "whenever capital is to be laid out on any work and a risk run of profit or loss, it is a commercial venture". The learned authors Alan Redfern and Martin Hunter on Law and Practice of International Commercial Arbitration (second edition), say as follows : "Thus, it would be permissible to hold an arbitration between two merchants over a commercial contract which they had made in the course of their business but not for example in respect of a contract for the separation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercial relationship in section 2 of the 1961 Act takes within its ambit all relationships which arise out of or are ancillary and incidental to the business dealings between citizens of two States. The concept takes within its fold all legal relationships pertaining to the international trade in all its forms between the citizens of different States, (underlining mine)." It is further contended that those observations came to be approved by the Division Bench in European Grain and Shipping Ltd. v. Bombay Extractions Pvt. Ltd., AIR 1983 Bom 36, I have already pointed out what is the point involved before the single judge and the Division Bench. The point presently raised was not at all involved or discussed. Further, the Division Bench has not cited the said passage for approving the point raised herein. In fact the Division Bench has pointed out the requirements of section 2 of the 1961 Act in para 17, but it is not stated that the parties should be belonging to two different nations. In my opinion, neither before the learned single judge nor before the Division Bench such a question arose and, therefore, these observations underlined by me cannot be treated as a ratio. The q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the disputes between them this distinct improvement was effected. It is only necessary that parties should belong to the States which have ratified the Convention and subject to commercial reservation as stipulated by section 2. The Geneva Protocol on Arbitration 1923 was followed by the Convention of 1927. The Convention, inter alia , provided for conditions which are necessary for recognition or enforcement of a foreign arbitral award. Under the Act of 1937, one of the conditions was that the parties should be subject to the jurisdiction of two States. The Act of 1937 was based on the Convention of 1927. This is precisely given the go-by by the New York Convention of 1958 on which the Act of 1961 is based. Learned counsel for the respondents contended that the said clause ( b ) of section 2 of the 1937 Act is not incorporated in section 2 of the 1961 Act because it was well understood that the parties should be of two different States as the Act was meant for promotion and smooth running of international trade. The object clause of the Act of 1961 shows that it is to facilitate smooth running and promotion of international trade or business. But it can easily be envisaged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax. It is only part of a larger settlement between the parties. It is further stated that even assuming that it is necessary, execution of the decree can be made subject to it and the award is not vitiated on that count. The petitioners are willing to obtain such permission. Section 269UC deals with restrictions on transfer of immovable property. Section 269UC(1) provides that no transfer of any immovable property worth more than Rs. 10 lakhs shall be effected unless the agreement for transfer is entered into between the transferor and transferee in accordance with sub-section (2). At least four months before the intended transfer, under sub-section (3), the said agreement is required to be submitted to the appropriate authority. Under section 269UD(1), the appropriate authority can order purchase of the same by the Central Government as provided therein. There is the first proviso to it, which says that no such order shall be passed after the expiration of a period of two months from the end of the month in which the statement (form) is received by the appropriate authority (after June 1, 1993 three months as per the second proviso). Section 269UE(1) provides that on the da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement between the parties. The flat already stands in the name of petitioners Nos. 1 and 2 and respondents Nos. 1 and 2. The effect of implementation of the award would be that the names of respondents Nos. 1 and 2 would be deleted. It cannot come within section 269UA( f )( ii ). It would be under the award of the arbitrator and judgment of the court and not by volition of the parties. Even assuming that it amounts to transfer, the passing of the judgment in terms of the award would not be against the public policy of Chapter XXC. The award is passed and judgment can be given in view of section 6(1) of the Arbitration Act, 1961. Even the decree following under section 6(2) can be made subject to the interested party following the procedure under Chapter XXC. Further, in my opinion, it will not be contrary to the public policy and the award cannot be said to be unenforceable in view of section 7(1)( b )( ii ). It is well accepted that public policy is a vague term and of uncertain import. It is necessary to invoke it in clear and incontestable cases of harm to the public. It is necessary to construe it strictly. In Renusagar Power Co. Ltd. v. General Electric Co. [1994] 81 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India is required and as the said permission is not obtained the award is against the public policy and void. In the affidavit-in-rejoinder, it has been pointed out that such point was raised before the State of New York, County of Nassau, U.S.A. court and before the Court of Appeals of the State of New York, but it was negatived and, therefore, the respondents cannot raise such contention. It is also pointed out that appropriate permission shall be obtained by the petitioners at an appropriate stage and in any case it cannot be said that the award is against the public policy. The necessary permission can be secured before the execution of the award and prior permission is not necessary. In fact, I find that the judgment of the apex court in Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548 ; AIR 1986 SC 1370, considered the scope of section 19(1)( b ) also and came to the conclusion that the expression "prior permission" is not used in section 24. The expression "general and special permission" does not mean "prior permission". Thus, the provision under section 29(1)( b ) and section 19(1)( b ) is the same. Section 47(3) also used the phrase "perm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... layed payment of instalments. It was contended that payment of the same was violative of the FERA and against the public policy. Relying upon Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548 ; AIR 1986 SC 1370, it came to be held that the FERA is a statute enacted for the national economic interest and the object of various provisions in the said Act is to ensure that the nation does not lose foreign exchange which is very much essential for the economic survival of the nation. It came to be observed (at page 222 of 81 Comp Cas) : "Keeping in view, the aforesaid objects underlying the FERA and the principles governing enforcement of exchange control laws followed in other countries, we are of the view that the provisions contained in the FERA have been enacted to safeguard the economic interests of India and any violation of the said provisions would be contrary to the public policy of India as envisaged in section 7(1)( b )( ii ) of the Act". It came to be held (at page 226 of 81 Comp Cas) : "In our view the earlier refusal by the Government to give its approval to the rescheduling of payment of instalments does not in any way preclude the Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judge first held that it is only an enforcement order and not a judgment. Then he considered the second submission and came to the conclusion that the award does not merge. The learned judge quoted the following para from Russell on Arbitration (20th edition, page 367) in support (at page 334 of AIR 1985 Bom) : " Merger of an award in judgment : In English law, any cause of action, whether a right of action under a contract or in respect of a tort or in respect of any other cause of action, is merged in and effaced by an English civil judgment pronounced thereon . This proposition is only another way of stating the well-known rule as to res judicata and is of course an illustration of that rule of public policy which holds that interest reipublicae ut sit finis litium. Indeed if the propositions were not a sound one, there could never be an end to any litigation. The proposition is indeed so elementary that it is impossible to find high and direct judicial authority for it. It is so ingrained in English law and that the only judicial pronouncements thereon are in cases where a possible exception to the rule is being discussed. For example, questions sometimes arise as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we should have thought that it would be equally competent to a party who has obtained a foreign judgment on the award to rely on the original cause of action which in this case happens to be the award. Therefore, the award is as much a cause of action quae the foreign judgment as a contract or any other right which the party has litigated and which has resulted in a foreign judgment. Instead of going to court on the contracts .which were entered into between the parties and obtaining a decree, the parties here first went to the domestic tribunal, obtained the award and then proceeded to complete the award and make it enforceable by obtaining a judgment. Therefore, in this case, the cause of action was constituted by the award and the judgment was obtained because the plaintiffs had the award in their favour. Therefore, it would seem to us that on principle there is no reason why the plaintiffs should be debarred from relying on the award as the original cause of action which resulted in the foreign judgment being obtained." Against this an appeal was preferred to the apex court. The judgment of the apex court is reported in Badat and Co. v. East India Trading Co., AIR 1964 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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