TMI Blog2012 (9) TMI 1123X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration clause has been duly executed by the parties. 3. We shall only refer to some of the relevant facts that are necessary for deciding the propriety and legality of the order passed on September 9, 2011. 4. In or about October 25, 2010, the appellant had entered into three several contracts including a contract bearing No. LMJ/SIC/Oct/01 (hereinafter referred to as the 'said contract') whereby the appellant had agreed to purchase from the defendant No. 1 and defendant No. 1 had agreed to sell to the appellant 15000 MT (+ - 5 %) of non basmati parboiled rice (15% maximum broken) of 2009-10 origin or latest crop of Thailand origin at the rate of USD 450 per MT). The appellant under the contract of sale was required to open an irrevocable confirmed unrestricted letter of credit in US Dollars in favour of the defendant No. 1 within five working days from the date of signing of the contract through Standard Chartered Bank (India) for the value of the goods to be shipped under the contract. 5. Thereafter some of the terms of the contract was amended on 7th December, 2010. There were several amendments also being carried out to the Letter of Credit and last of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement which was duly recorded in the letter dated 14th February, 2011 instructed its banker, namely, the Bank of Baroda to remit 90% of the invoice value to the defendant no. 1 and the defendant No. 1 on the basis of such agreement had received the said amount. The defendant no. 1, however, after receiving the said amount sought to repudiate the said agreement by refusing to send any of its representatives for joint inspection and demanding forthwith payment of the balance 10% of the invoice value without holding any such joint inspection. 7. This act of repudiation resulted in a dispute as to the entitlement of the respondent No. 1 to claim and demand balance 10% of the invoice value without first having a joint inspection as mutually agreed upon between the parties. It is contended that the Government of Bangladesh, namely, the consignee to whom the said rice was ultimately delivered and raised a claim for damages to the extent of USD 430,748.42 for the inferior quality of rice. Thereafter, some discussions held between the parties in order to resolve the issue in which it was alleged that an agreement was arrived at between the parties that after adjustment of the claims ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with GAFTA Arbitration Rules, 125. This letter may be treated as notice showing our intention to refer the dispute to arbitration. Thanking you, Sd/- Illegible Yours trully, For Sleepwell Industries Co. Ltd. (Authorised Signatory) 9. This notice and the demand made by the defendant No. 1 from the defendant No. 2 to make payment of the 10% of the invoice value as resulted in filing the aforesaid suit being C.S. No. 185 of 2011 in which the plaintiff/appellant has, inter alia, prayed for the following reliefs:- a) A decree for a declaration that there is no agreement between the plaintiff and the defendant no. 1 to refer any dispute arising out of the said contract bearing No. LMJ/SIC/Oct/01 dated 25th October, 2010 to arbitration either as per GAFTA 125 in London or otherwise; b) A decree for a declaration that the disputes and differences between the plaintiff and the defendant no. 1 arising out of the contract bearing No. LMJ/SIC/Oct/01 dated 25th October, 2010 cannot be referred to arbitration in terms of GAFTA Arbitration Rules No. 125; c) A decree adjudging the two letters both dated 28th July, 2011 issued by the defendan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject to and abide by the result of the suit. 12. This observation has resulted in filing a cross appeal by the defendant no. 1 on the ground that such observation is contrary to the provision relating to enforcement of foreign awards (in this case if an award is passed, it would be an English award) as contained in part II of Chapter 1 of the Arbitration and Conciliation Act and against the spirit of the said Act. 13. Mr. Surojit Nath Mitra, learned Counsel appearing on behalf of the petitioner submits that normally Civil Court has jurisdiction to entertain a dispute arising out of a contract. Only when there is an arbitration clause in such contract or when the parties to the contract enter into a separate arbitration agreement for referring their disputes to arbitration, the jurisdiction of the Civil Court being the natural forum is barred and such jurisdiction by reason of the agreement of the parties is vested in the arbitral tribunal. In respect of a contract which contains an arbitration agreement/clause, when dispute arises between the parties thereto, one of the parties, in breach of the contract, disregarding such arbitration agreement can still invoke the jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arbitration clause/agreement, is required to be and has to be adjudicated by this Hon'ble Court being the natural forum. 22. The appellant/plaintiff has also claimed relief against the defendant no. 2 as the defendant no. 2 alleged to have wrongfully and illegally threatened to make payment to the defendant no. 1 though the defendant no. 2 has admitted that they are not liable to make any payment to the defendant no. 1. 23. Since the defendant no. 2 is not a party to the arbitration agreement, the appellant/plaintiff cannot claim such relief against the defendant no. 2 in the arbitration proceeding. The entire disputes between the parties being the subject matter of the instant suit can only be decided in the instant comprehensive suit and not in an arbitration proceeding between the appellant/plaintiff and the defendant no. 1. The defendant no. 2 is a necessary and proper party for adjudication of the disputes between the parties to the suit. 24. Even when an application is made before a Civil Court for referring the parties to arbitration, the first thing, which the said Civil Court is required to consider is whether there is a valid and subsisting arbitration a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The defendant No. 1 had merely sought to appoint its arbitrator. There was no appointment of the arbitrator by the appellant/plaintiff nor a third arbitrator was or could be appointed. In any event, the question of the appellant/plaintiff raising such question of limitation as a defence to the arbitration claimed before any Arbitral Tribunal did not and could not arise. 30. Further if the GAFTA arbitration proceedings are conducted in London and if the appellant is compelled to participate in such proceedings, the same will lead to prohibitive costs to be incurred by the appellant and as such it will not be possible for the appellant/plaintiff to contest the arbitration proceeding. 31. This Hon'ble Court is competent to pass orders as prayed for, if it appears to this Hon'ble Court that the acts of the defendant and particularly that of the defendant No. 1 is bad and per se illegal. 32. Per contra, Mr. Tilak Kumar Bose, learned Senior Counsel appearing on behalf of the opposite party no. 1 submits that having regard to the nature of the agreement which contains an arbitration clause inasmuch as the said contract containing the arbitration clause is not in disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of Arbitration Act, 1996 shall apply to such proceedings. Some of the relevant clauses of GAFTA, 125 are reproduced here in below:- 1. PRELIMINARY 1.1 The provisions of the Arbitration Act, 1996, and of any statutory amendment, modification or re-enactment thereof for the time being in force, shall apply to every arbitration and/or appeal under these Rules save insofar as such provisions are expressly modified by, or are inconsistent with, these Rules. 1.2 The judicial seat of the arbitration shall be, and is hereby designated pursuant to section 4 of the Arbitration Act 1996 as, England. 2. PROCEDURE AND TIME LIMITS FOR CLAIMING ARBITRATION The claimant shall serve on the respondent a notice stating his intention to refer a dispute to arbitration within the following time limits. (The appointment of arbitrators shall be in accordance with Rule 3). 2.1 Disputes as to Quality and/or condition (a) In respect of disputes arising out of the Rye Terms clause not later than the 10th consecutive day after the date of completion of final discharge. (b) In respect of claims arising out of certificates of analysis in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time may already have expired) or dispense with the necessity for compliance and may proceed to hear and determine the appeal as if each and all of those Rules had been complied with. Any decision made pursuant to this Rule shall be final, conclusive and binding. 38. The appellant contended that the dispute between the parties arose on 22nd March, 2011 and, accordingly, such disputes could not have been referred to arbitration on 28th July, 2011. It was further contended that even otherwise the said reference is expressly barred by limitation since Clause 2.2 (d) in the event of non-payment of amounts payable, such notice is required to be issued no later than 60 consecutive days that a dispute has arisen as provided for in the Payment Clause of the contract. 39. It was argued that the dispute arose only on 1st June, 2011. 40. Moreover, the applicability of Clause 2.2(d) is not free from doubt. The contract in question is a F.O.B. Contract and Clause 2.2(b) specifies a one year time limit period and similar time limit period is also specified in Clause 2.2(c). In view thereof, it is contended that Clause 2.2(b) and 2.2(c) are exhaustive so far as the present dispute i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on board, getting the mate's receipt and handing it to the forwarding agent to enable him to obtain the bill of lading. (C.I.F. F.O.B. Contracts, David M. Sassoon, 4th Edition) 43. In any event, the arbitral tribunal to be constituted under the GAFTA Rules would be required to consider the nature of the contract and if such claim is barred by limitation. Clause 21 clearly states that it is for the Tribunal to decide whether there has been non-compliance with time limits and Rules, and such objection can only be raised by way of defence. That apart, the Tribunal always has a power under Rule 21(a) to extend time. Whether or not clause 2.2(d) would apply in the facts of the case is for the Tribunal to decide on the basis of the materials and pleading to be placed before the Tribunal. 44. Mr. Surojit Mitra, learned Senior Counsel appearing on behalf of the petitioner submits that Clause 21 of the GAFTA Rules requires the Tribunal to decide the question of non-compliance only when such matters are raised as a defence to the arbitration claim. It is argued that unless a tribunal is duly constituted under the GAFTA Rules, the question of raising such defence cannot and does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bharat Aluminium in order to justify that since the interim injunction cannot be granted, there would be no real cause of action for the plaintiff to continue with the suit and in such a situation, it should be held that the plaint does not disclose a cause of action within the meaning of Order 7 Rule 11(a) of the Code of Civil Procedure and, accordingly, we should dismiss the suit. 50. We are also of the view that once the parties with their eyes wide open have entered into the said contract containing an arbitration clause which made a specific reference to the GAFTA Rules, 125, all matters and questions arising out of the said agreement including interpretation thereof including whether claim is time barred exclusively falls within the jurisdiction of such Tribunal. Such issues are to be decided only by arbitral tribunal constituted under the GAFTA Rules, 125. 51. Mr. Surojit Mitra, learned Senior Counsel appearing on behalf of the petitioner submits that in absence of an application being filed under Section 45 of the Arbitration and Conciliation Act, 1996, the attempted initiation of the arbitration proceeding by the respondent No. 1 should be stalled. In any event, thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the seat of the arbitration is outside England and Wales or Northern Ireland, or that when designated or determined the seat is likely to be outside England and Wales or Northern Ireland, makes it inappropriate to do so. (4) The Court may exercise a power conferred by any provision of this Part not mentioned in sub-section (2) or (3) for the purpose of supporting the arbitral process where- (a) no seat of the arbitration has been designated or determined, and (b) by reason of a connection with England and Wales or Northern Ireland the Court satisfied that it is appropriate to do so. (5) Section 7 (reparability of arbitration agreement) and section 8 (death of a party) apply where the law applicable to the arbitration agreement is the law of England and Wales or Northern Ireland even if the seat of the arbitration is outside England and Wales or Northern Ireland or has not been designated or determined. 4. Mandatory and non-mandatory provisions. - (1) The mandatory provisions of this Part are listed in Schedule I and have effect notwithstanding any agreement to the contrary. (2) The other provisions of this Part (the non-ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaintiff/appellant to raise challenges once a final award is passed and when the respondent No. 1 would enforce such foreign award in India. This is available only as a shield and not as a sword, because section 45 or 48 of Part-II of the Arbitration and Conciliation Act, 1996 does not contemplate filing a pre-emptive application. 56. The parties have expressly agreed to be bound by the Arbitration Act, 1996 by GAFTA Arbitration Rules, 125 and any ground of challenge with regard to the applicability of Clause 2.2 is an issue which is to be decided by the arbitral tribunal or the English Court by virtue of Section 31 and 32 of the English Arbitration Act, 1996. We may refer to the decision of the Hon'ble Supreme Court reported in Yograj Infrastructure Ltd. vs. Ssang Yong Engineering Construction Co. Ltd. reported in 2011 (9) SCC 735 in which it is held that in absence of any stipulation, the arbitration clause as to which law would apply to arbitral proceedings in connection with international commercial arbitration outside India, the Governing Contract (proper contract) would be the law applicable to arbitral tribunal. The seat of arbitration in foreign country does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. 32. In our opinion, the learned Single Judge of the Gujarat High Court had rightly followed the conclusion recorded by the three-Judge Bench in Bhatia International v. Bulk Trading S.A. 2002 (4) SCC 105) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision that the Arbitration Act, 1996 would govern the arbitration proceedings, would not make Part I of the Arbitration Act, 1996 applicable or enable Indian Courts to exercise supervisory jurisdiction over the arbitration or the award. It would only mean that the parties have contractually imported from the Arbitration Act, 1996, those provisions which are concerned with the internal conduct of their arbitration and which are not inconsistent with the mandatory provisions of the English Procedural Law/Curial Law. This necessarily follows from the fact that Part I applies only to arbitrations having their set/place in India. 125. We are unable to agree with the submission of the learned senior Counsel that there is any overlapping of the provisions in Part I and Part II; nor are the provisions in Part II supplementary to Part I. Rather there is complete segregation between the two parts. 130. We are unable to accept the submission that the use of expression notwithstanding anything contained in Part I, or in the Code of Civil Procedure, 1908, in Section 45 of the Arbitration Act, 1996 necessarily indicates that provisions of Part I would apply to foreign seated arbitration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the second alternative respectively) would be competent to suspend/annul the New York Convention awards. It is clarified that Section 48(1)(3) is only one of the defences on the basis of which recognition and enforcement of the award may be refused. It has no relevance to the determination of the issue as to whether the national law of a country confers upon its courts, the jurisdiction to annul the awards made outside the country. Therefore, the word suspended/set aside in Section 48(1)(e) cannot be interpreted to mean that, by necessary implication, the foreign awards sought to be enforced in India can also be challenged on merits in Indian Courts. The provision only means that Indian Courts would recognize as a valid defence in the enforcement proceedings relating to a foreign award, if the Court is satisfied that the award has been set aside in one of the two countries, i.e., the first alternative or the second alternative . 176. It appears to us that as a matter of law, an inter-parte suit simply for interim relief pending arbitrations, even if it be limited for the purpose of restraining dissipation of assets would not be maintainable. There would be number of hurdl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would clearly be contingent/speculative. There would be no existing cause of action. The plaint itself would be liable to be rejected under Order VII Rule 11(a). In any event, as noticed above, no interim relief could be granted unless it is in aid of an ancillary to the main relief that may be available to a party on final determination of rights in a suit. This view will find support from a number of judgments of this Court. 61. Mr. Bose has relied upon the following decisions for the proposition that the Civil Court would not pass an order of injunction to stay an arbitration proceeding: (a) 2012 (5) SCC 214 (Kvaerner Cementation India Ltd. Vs. Bajranglal Agarwal Anr.); (b): 2010 (3) Mh. L.J 165 (JSW Steel Ltd. Vs. JFE Shoji Trade Corporation Anr.) 62. The intention of the parties to have their disputes resolved by arbitration cannot be doubted. The parties have entered into such contract with their eyes wide open. They have decided that all disputes are to be resolved, adjudicated and decided by arbitral tribunal to be constituted under the GAFTA Rules. The principal ground for avoiding the said Tribunal is of forum inconvenience. The additional grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anti-suit injunction in Paragraph 23 of the said report which is reproduced here in below:- 1. In exercising discretion to grant an anti-suit injunction the court must be satisfied of the following aspects:- (a) the defendant, against whom injunction is sought, is amenable to the personal jurisdiction of the court; (b) if the injunction is declined the ends of justice will be defeated and injustice will be perpetuated; and (c) the principle of comity - respect for the court in which the commencement or continuance of action/proceeding is sought to be restrained - must be borne in mind; 2. In a case where more forums than one are available, the Court in exercise of its discretion to grant anti-suit injunction will examine as to which is the appropriate forum (Forum conveniens) having regard to the convenience of the parties and may grant anti-suit injunction in regard to proceedings which are oppressive or vexations or in a forum non-conveniens; 3. Where a jurisdiction of a Court is invoked on the basis of jurisdiction clause in a contract, the recitals therein in regard to exclusive or nonexclusive jurisdiction of the court of choice of the parties are not determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Oil and Natural Gas Commission v. Western Company of North America reported in 1987 (1) SCC 496 which possibly was the first case where the Hon'ble Supreme Court in exercising jurisdiction under Section 151 of the Code of Civil Procedure granted anti-suit injunction. 66. In Albon v. Naza Motor Trading Sdn Bhd reported in 2008 (1) Lloyd's Law Reports, the court of appeal in considering a case of anti-arbitration injunction observed that if it appears that the agreement to arbitrate has been forged in order to defeat proceedings properly brought in Civil Court (England), the autonomy of the arbitrators can be undermined. In paragraph 7 of the said report it was held that a party will not be restrained from instituting or continuing foreign proceedings unless the applicant can show that to do so would be oppressive and vexatious or (as it sometimes said) unconscionable. Paragraph 7 of the said report is reproduced here in below:- 7. These submissions derive from the well-known principle that a party will not be restrained from instituting or continuing foreign proceedings unless the applicant can show that to do so would be oppressive and vexatious or (as it is sometime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and such proceedings commenced prior to the institution of the suit. Both the contesting parties nominated their arbitrators and only the Presiding arbitrator was nominated. At this stage, a suit was filed by plaintiff with a prayer that the defendant No. 1 may be restrained their proceeding with the arbitration proceeding at London. The learned trial Judge dismissed the said application on the ground that no exceptional case was made out for granting an anti-suit injunction in favour of the plaintiff. In affirming the said order, the Hon'ble Division Bench of the Bombay High Court following the principles laid down in Modi Entertainment (supra) held that no exceptional case was made out for granting such an anti-suit injunction in favour of the plaintiff. 70. Both the parties have made argument with the presence of the defendant No. 2 in the suit. Mr. Tilak Kumar Bose, the learned Senior Counsel contended that the presence of the defendant No. 2 is wholly unnecessary and introduced with a view to circumvent the arbitration clause. Mr. Surojit Mitra, learned senior Counsel appearing on behalf of the plaintiff submits that the cause of action against the defendant no. 2 threa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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