TMI Blog2008 (1) TMI 829X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Civil appeal is allowed to this extent. - C.A. 309 OF 2008 - - - Dated:- 10-1-2008 - Tarun Chatterjee P. Sathasivam, JJ. JUDGMENT 1) Leave granted. 2) Appellant - Venture Global Engineering, a company incorporated in the United States of America with its principal office at 33662, James J Pampo Drive, Fraser, Michigan, USA 48026 through its Constituted Attorney, Mr. Pradeep Yadav filed this appeal challenging the final order and judgment dated 27.2.2007 passed by the High Court of Judicature, Andhra Pradesh at Hyderabad in City Civil Court Appeal No. 26 of 2007 whereby the Division Bench of the High Court dismissed their appeal. 3) The facts, which are necessary for the disposal of this appeal, are as under: On 20.10.1999, Appellant-Company and respondent No.1- Satyam Computer Services Limited, a registered company having its office at Mayfair Centre, S.P. Road, Secunderabad entered into a Joint Venture Agreement to constitute a company named Satyam Venture Engineering Services Ltd. respondent No.2 herein in which both the appellant and respondent No.1 have 50 per cent equity shareholding. Another agreement was also executed between the parties on the same day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led objection to the application. The trial Court, by its order dated 28.12.2006, allowed the said application and rejected the plaint of the appellant. Challenging the said order, the appellant filed an appeal before the High Court. On 27.2.2007, the High Court dismissed the appeal holding that the award cannot be challenged even if it is against the public policy and in contravention of statutory provisions. Against the said order, the appellant preferred the above appeal by way of special leave petition. 4) Heard Mr. K.K. Venugopal, learned senior counsel, appearing for the appellant and Mr. R.F. Nariman, learned senior counsel, appearing for respondent No.1. 5) After taking us through agreements entered into by both the parties, subsequent developments such as alleged violations, Award by an Arbitrator at U.K., proceedings before the District Court, Michigan, USA and the impugned proceedings of the Ist Additional Chief Judge-City Civil Court, Secunderabad as well as the order of the High Court, Mr. K.K. Venugopal learned senior counsel appearing for the appellant has raised the following contentions: (i) The claim that Part I of the Arbitration and Conciliation Act, 1996 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract with the first respondent Bulk Trading on 9.5.1997. This contract contained an arbitration clause which provided that arbitration was to be as per the Rules of the International Chamber of Commerce. On 23.10.1997, the Ist respondent made a request for arbitration with ICC. Parties had agreed that the arbitration be held in Paris, France. ICC has appointed a sole arbitrator. The first respondent filed an application under Section 9 of the Act before the 3rd Additional District Judge, Indore, M.P. against the appellant and the 2nd respondent. One of the interim reliefs sought for was an order of injunction restraining these parties from alienating, transferring and/or creating third- party rights, disposing of, dealing with and/or selling their business assets and properties. The appellant raised the plea of maintainability of such an application. The appellant contended that Part I of the Act would not apply to arbitrations where the place of arbitration was not in India. The application was rejected by the 3rd Additional District Judge on 1-2-2000. It was held that the court at Indore (M.P.) had jurisdiction and the application was maintainable. The appellant filed a writ pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, sub-section (2) of Section 2 would also be in conflict with Section 1 which provides that the Act extends to the whole of India. ( d ) Leave a party remediless inasmuch as in international commercial arbitrations which take place out of India the party would not be able to apply for interim relief in India even though the properties and assets are in India. Thus a party may not be able to get any interim relief at allA 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. 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. Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke place outside India. The use of the language is significant and important. The legislature is emphasizing 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 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 arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations 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. Lastly, it must be stated that the said Act does not appear to be a well-drafted legislation. Therefore the High Courts of Orissa, Bombay, Madras, Delhi and Calcutta cannot be faulted for interpreting it in the manner indicated above. However, in our view a proper and conjoint reading of all the provisions indicates that Part I is to apply also to international commercial arbitrations which take place out of India, unless the parties by agreement, express or implied, exclude it or any of its provisions. Such an interpretation does not lead to any conflict between any of the provisions of the said Act. On this interpretation there are no lacunae in the said Act. This interpretation also does not leave a party remediless. Thus such an interpretation has to be preferred to the one adopted by the High Courts of Orissa, Bombay, Madras, Delhi and Calcutta. It will therefore hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the arbitration not having taken place in India, all or some of the provisions of Part I may also get excluded by an express or implied agreement of parties. But if not so excluded, the provisions of Part I will also apply to foreign awards. The opening words of Sections 45 and 54, which are in Part II, read notwithstanding anything contained in Part I. Such a non obstante clause had to be put in because the provisions of Part I apply to Part II. 13) According to Mr. K.K. Venugopal, paragraphs 26 and 27 start by dealing with the arguments of Mr. Sen who argued that Part I is not applicable to foreign awards. He further pointed out that 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. He further pointed out that the finding specifically states that, 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. By omitting to provide that Part I will not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sethia Ltd., AIR 1960 Calcutta 702. In paragraphs 45 and 63, the Calcutta High Court while dealing with Arbitration Act of 1940 sets out the reasoning in support of a challenge being permissible in India to a foreign award. 14) In order to find out an answer to the first and prime issue and whether the decision in Bhatia International (supra) is an answer to the same, let us go into the details regarding the suit filed by the appellant as well as the relevant provisions of the Act. The appellant VGE filed O.S. No. 80 of 2006 on the file of the Ist Additional District Court, Secunderabad, for a declaration that the Award dated 3.4.2006 is invalid, unenforceable and to set aside the same. Section 5 of the Act makes it clear that in matters governed by Part I, no judicial authority shall intervene except where so provided. Section 5 which falls in Part I, specifies that no judicial authority shall intervene except where so provided. The Scheme of the Act is such that the general provisions of Part I, including Section 5, will apply to all Chapters or Parts of the Act. Section 2(5) which falls in Part I, specifies that this part shall apply to all arbitrations and to all proceedings r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consistent view in the following judgments: (a) Bombay Gas Company Limited vs. Mark Victor Mascarenhas Ors., 1998 1 LJ 977 (b) Inventa Fischer Gmbh Co., K.G. vs. Polygenta Technologies Ltd., 2005 (2) Bom C.R. 364 (c) Trusuns Chemical Industry Ltd. vs. Tata International Ltd. AIR 2004 Gujarat. 274 (d) Bharat Aluminium Co. Ltd. vs. Kaiser Aluminium Technical Services, AIR 2005 Chhatisgarh 21 (e) Bulk Trading SA vs. Dalmia Cement (Bharat) Limited, (2006) 1 Arb.LR 38(Delhi) 17) On close scrutiny of the materials and the dictum laid down in three-Judge Bench decision in Bhatia International (supra), we agree with the contention of Mr. K.K.Venugopal and hold that paragraphs 32 and 35 of the Bhatia International (supra) 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 arbitrations held o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by-passed by taking the award to a foreign country for enforcement. 20) Mr. K.K.Venugopal also highlighted that in Company Law, the word has a definite connotation which would require the ownership of the shares to be transferred to the transferee, which would involve the following steps being taken under the Companies Act and the rules and regulatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r execution of the Award the objection petition filed by the first respondent herein as well as the orders passed by the Court of Michigan, US submitted that the appellant having participated and consented in those proceedings is precluded from re-opening the very same issue by filing a suit in a court at Secunderabad which is not permissible either under law or in terms of their conduct. In view of the legal position derived from Bhatia International (supra), we are unable to accept Mr. Narimans argument. It is relevant to point out that in this proceeding, we are not deciding the merits of the claim of both parties, particularly, the stand taken in the suit filed by the appellant- herein for setting aside the award. It is for the concerned court to decide the issue on merits and we are not expressing anything on the same. The present conclusion is only with regard to the main issue whether the aggrieved party is entitled to challenge the foreign award which was passed outside India in terms of Section 9/34 of the Act. Inasmuch as the three-Judge Bench decision is an answer to the main issue raised, we are unable to accept the contra view taken in various decisions relied on by M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, we agree with the stand of the learned senior counsel for the appellant. 24) Coming to the other contentions particularly the fact that the suit has been filed before the trial Court which is a court of competent jurisdiction under Section 2(e) of the Act and not an application under Section 34 of the Act, Mr. K.K. Venugopal pointed out that it would not affect the issue of jurisdiction as this Court has upheld the conversion of a suit into a Section 9 petition under the Act. (vide Sameer Barar and Ors. Vs. Ratan Bhushan Jain Ors. (2006) 1 SCC 419) and in another instance, converted a writ petition into a first appeal under the Civil Procedure Code. (vide Ajay Bansal vs. Anup Mehta Ors. (2007) 2 SCC 275). Even otherwise, if the Court in question is not having jurisdiction in the interest of justice the suit/proceeding has to be transferred to the court having competent jurisdiction. 25) Learned senior counsel for the appellant submitted that the first respondent - Satyam Computer Services Ltd. could not have pursued the enforcement proceedings in the District Court in Michigan, USA in the teeth of the injunction granted by the Courts in India which also, on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 11.05 (b) and (c) of the Shareholders Agreement between the parties which is relevant has already been extracted in para 23. The non-obstante clause would override the entirety of the agreement including sub-section (b) which deals with settlement of the dispute by arbitration. Sub-section (c), therefore, would apply to the enforcement of the Award which declares that, notwithstanding that the proper law or the governing law of the contract is the law of the State of Michigan, their shareholders shall at all times act in accordance with the Companies Act and other applicable Acts/Rules being in force in India at any time. Necessarily, enforcement has to be in India, as declared by this very section which overrides every other section in the Shareholders Agreement. Respondent No.1, therefore, totally violated the agreement between the parties by seeking enforcement of the transfer of the shares in the Indian company by approaching the District Courts in the United States. 27) The claim of the first respondent that the section, namely, 11.05 (c) of the SHA cannot be construed to mean that Indian law is a substantive law of the contract or that Indian law would govern the dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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