TMI Blog2018 (11) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... o an arbitration shall be deemed to have consented that the judgment upon the arbitration award may be entered in any federal or state court having jurisdiction thereof. Having consented and submitted to the jurisdiction of U.S. Law, it is not correct in submitting that the arbitration award is governed by the Laws of India. On a plain reading of clause 15, it is clear that the place of arbitration referred to in clause 15 is the seat of arbitration. The parties expressly chose to have the place of arbitration in New York. This being the case, juridical seat of arbitration was New York. In fact, the appellant themselves invoked arbitration and submitted themselves to the jurisdiction of New York. This being the case, it is not correct to hold that the place of arbitration referred to in clause 15 was merely a venue and not a seat of arbitration. Once the juridical seat of arbitration is outside India, and also the law governing the arbitration agreement is Foreign Law, then clearly, Part-I of the Arbitration and Conciliation Act, 1996 is impliedly excluded - the learned Single Judge was absolutely correct in holding that the award passed by the Arbitral Tribunal, in the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Arbitral Tribunal could be challenged in this Court under Section 34 of the Act. Before we set out and deal with the legal submissions of the parties, it would be apposite to set out some bare and necessary facts. 3. The appellant is a limited liability company organized under the laws of the Republic of Mauritius and is inter alia engaged in the business of making investments. The appellant was the claimant before the Arbitral Tribunal and the Petitioner before the learned Single Judge. Respondent Nos.1 and 3 are limited liability companies constituted under the laws of the State of Delaware in the United States of America. Respondent No.2, Standard Chartered Bank (Mauritius) Ltd., is a company organized under the laws of the Republic of Mauritius. It is wholly owned by a company registered under the Laws of England and Wales respondent No.5. Respondent No.4 is a Standard Chartered PLC, a public limited Company registered under the Laws of England Wales and respondent No.5 is the Standard Chartered Bank, an international banking company registered under the Laws of England Wales. Respondent No.6 Sub-continental Equities Ltd., is a company organized under the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court had no jurisdiction to entertain the Arbitration Petition under Section 34 of the Act considering that the juridical seat of arbitration was outside India and also the law governing the arbitration agreement was Foreign Law, and hence, Part-I of the Arbitration and Conciliation Act, 1996 was impliedly excluded. This being the case, no challenge could be brought to the award under Section 34 of the Act, was the submission of the respondents. 7. After considering the submissions of the parties as well as the law on the subject, the learned Single Judge upheld this contention and proceeded to dismiss the Arbitration Petition with costs in the sum of ₹ 5 Lacs. The learned Judge directed that the costs be paid within four weeks from the date of the impugned order by a cheque drawn in favour of the Advocate on record for respondent No.1. It is being aggrieved by this order of the learned Single Judge that the appellant is before us under Section 37 of the Act. 8. In this factual backdrop, Mr Rafique Dada, learned Senior Counsel appearing on behalf of the appellant, submitted that the learned Single Judge erred in holding that the juridical seat of the arbitration was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the parties to apply Indian Law not only to the substantive provisions of the Escrow Agreement but also to the arbitration agreement, was the submission of Mr Dada. This being the case, it was the submission of Mr Dada that the parties also intended to subject the arbitration to the jurisdiction of Indian Courts. In light of this express inclusion of Part-I of the Act, Mr Dada submitted that this Court under Section 34 of the Act had jurisdiction to entertain and try the Petition filed under Section 34 of the Act to challenge the Arbitral Award. 10. Mr. Dada then submitted that the Supreme Court in the case of Sumitomo Heavy Industries Ltd Vs ONGC Ors. [(1998) 1 SCC 305] (for short Sumitomo ) held that upon conclusion of the arbitration, the Arbitral Tribunal is functus officio and the corresponding authority of the courts administering the curial law ceases. The aspects of enforcement and setting aside are governed entirely by the law governing the arbitration agreement only. According to Mr Dada, since the law governing the arbitration agreement was Indian Law, the Petition for setting aside the arbitration award could lie before this Court under Section 34 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of Part-I of the Act. He submitted that in the facts of the present case, both these tests were squarely satisfied. He submitted that in the facts of the present case, the law governing the arbitration agreement was Indian Law and which was clear from a plain reading of clause 16 of the arbitration agreement as mentioned above. Mr Dada then submitted that even assuming for the sake of argument that the Escrow Agreement was silent on the law governing the arbitration agreement, the law governing the contract must be deemed to also apply to the arbitration agreement as stipulated by the Supreme Court in the case of Sumitomo. Mr Dada submitted that even the nature of the transaction and its close links by its subject matter and structure to India, parties consciously and intentionally agreed on a shift of governing law from New York Law to Indian Law. Looking to all these submissions, in any event the first test as laid down in the judgment of Reliance II was squarely satisfied in the facts and circumstances of the present case. 14. As far as the second test as set out in the judgment of Reliance II is concerned (whether juridical seat of arbitration is in India or in the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in clause 15 of the Escrow Agreement, only refers to the venue or physical location of the arbitration and not the juridical seat. According to Mr Dada this was further made clear considering that clause 15 stated that the place of arbitration shall be New York or any other place as may be agreed upon by the Arbitrating Parties. This clearly indicates that New York was only the venue of the arbitration and was not the juridical seat. Since New York was not the juridical seat and the law applicable to the arbitration agreement was Indian Law, according to Mr Dada, both tests as laid down by the Supreme Court in the case of Reliance II were clearly satisfied and hence the learned Single Judge could not have come to the conclusion that Part-I of the Act was impliedly excluded. For all these reasons, Mr Dada submitted that there was a serious legal infirmity in the order of the learned Single Judge, which required our interference in appeal under Section 37 of the Act. 16. On the other hand, Mr. Chinoy, learned Senior Counsel appearing on behalf of respondent No.1 submitted that there is no merit in the arguments canvassed by Mr Dada. He submitted that clause 15 of the Escrow Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amended arbitration agreement, the Tribunal nonetheless was bound to arbitrate the dispute under the Federal Arbitration Act and the prevailing New York Law. Further it was the appellant's own case in its post-hearing brief dated 15th May, 2015 that the joinder of parties to arbitration is a procedural matter to be considered under US Law. Looking to all this, Mr Chinoy submitted that even the appellant correctly understood that the arbitration agreement and the arbitration proceedings before the Arbitral Tribunal were to be governed by US Law. This being the case, it was futile for the appellant to now submit that the arbitration agreement was governed by Indian Law. Whether the arbitration agreement was to be governed by Indian Law or US Law was a matter of choice of the parties. This choice was clearly spelt out not only from what was stated in clause 15 of the Escrow Agreement but also from the understanding of the appellant and as set out earlier. This being the case, the appellant cannot be allowed to approbate and reprobate in this fashion by once stating before the Arbitral Tribunal that US Law was applicable and then by stating before this Court that Indian Law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the necessary conclusion would be that the venue of the Arbitration was the juridical seat. In conclusion, the Supreme Court in Roger Shgahsoua's case held that London UK would be the juridical seat of the arbitration and consequently the award could not be challenged under Section 34 of the Act. For all these reasons, Mr Chinoy submitted the learned Single Judge has correctly applied the legal principles settled by the Supreme Court in various decisions and thereafter came to the conclusion that this Court had no jurisdiction to entertain the challenge to the arbitral award under Section 34 of the Act, as Part-I of the Act was impliedly excluded. This being the case, he submitted that no interference was called for by us in an appeal under Section 37 of the Act. 20. Mr. Dwarkadas, learned Senior Counsel appearing on behalf of respondent No.6, basically adopted the arguments of Mr Chinoy. Mr Dwarkadas submitted that in the present case the Dispute Resolution was contained in clause 15 of the Escrow Agreement. Clause 15.1 provides that:- (a) the arbitration shall be conducted according to the Commercial Arbitration Rules of the American Arbitration Association; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich has to be gathered from interpretation of the agreement and the conduct of parties. He, therefore, submitted that there was no question of the appellant then arguing that there cannot be any estoppel against Law / Statute. He submitted that the appellant itself had invoked arbitration in New York and applied the provisions of the Federal Arbitration Act, USA and the prevailing New York law. This was clear when the appellant opposed the application filed by respondent Nos.3 to 6. In response to that application, the appellant clearly stated that the Federal Arbitration Act and the prevailing New York Law applied, and therefore, opposed the application filed by respondent Nos.3 to 6. According to Mr Dwarkadas such conduct of the appellant clearly demonstrated its intention and understanding of the agreement that the juridical seat was New York and the arbitration agreement was governed by U.S. Law. In fact, the final termination notice issued by the appellant on 16th March, 2012 invoking arbitral proceedings in terms of clause 15 of the agreement, according to Mr Dwarkadas, clearly mentions that the appellant shall seek relief in aid of arbitration from the Courts of the State o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmit to binding arbitration. The arbitration shall be conducted according to the Commercial Arbitration Rules of the American Arbitration Association. The place of arbitration shall be New York, New York or such other place as may be agreed upon by the Arbitrating Parties. The Arbitrating Parties shall attempt to agree upon one arbitrator, but if they are unable to agree, each of Arranger, Corsair and the Escrow and Transaction Settlement Agent shall appoint an arbitrator and the total number of arbitrators shall be three. Expenses of the arbitrator(s) shall be divided equally between the Arbitrating Parties to such arbitration. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof, and shall be enforceable against the Arbitrating Parties in accordance with the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as amended. 15.2 The arbitrators shall issue a written statement of their award detailing the facts and reasons upon which their decision was based. 15.3 Any reference of any dispute, difference or claim to arbitration under this Agreement shall not affect the performance by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause 15 of the Escrow Agreement which deals with Dispute Resolution, clearly stipulates that firstly negotiations have to be carried out between the arbitrating parties to resolve any dispute or differences or claim arising out of or in connection with the Escrow Agreement including the construction, validity, execution, performance, termination or breach thereof. If the negotiations do not resolve such dispute then the Arbitrating Parties shall submit to a binding arbitration. Thereafter, clause 15.1 clearly stipulates that the arbitration shall be conducted according to the Commercial Arbitration Rules of the American Arbitration Association. It further states that the place of arbitration shall be New York, New York or such other place as may be agreed upon by the Arbitrating Parties. Clause 15.1 thereafter goes on to stipulate that the judgment upon the award rendered by the arbitrator may be entered in any Court having jurisdiction thereof and shall be enforceable against the Arbitrating Parties in accordance with the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Since, the arbitration was initiated and conducted under the Commercial Arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes that a reasoned award is appropriate. To put it in a nutshell this rule contemplates that an award under the Commercial Arbitration Rules of the American Arbitration Association need not be a reasoned award. We must make note that this is in stark contrast to section 31(3) of the Arbitration and Conciliation Act, 1996 which mandates that the arbitral award shall state the reasons upon which it is based unless (a) the parties have agreed that no reasons are to be given, or (b) the award is an arbitral award on agreed terms under Section 30. To put it in a nutshell, the arbitration award under Section 31(3) of the Act is required to be a reasoned award unless the parties agree otherwise or is an award that is passed on agreed terms as contemplated under Section 30. It is not in dispute that the impugned award was passed by the Arbitral Tribunal by applying the provisions of the Commercial Arbitration Rules of the American Arbitration Association. This being the case, we find that Mr Chinoy is correct in submitting that the Federal Arbitration Act was ipso jure the law applicable to the arbitration / arbitration proceedings. As mentioned earlier, Rule 52(c) clearly stipulates that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings. Having done so, it was clear that the appellant herein and all throughout, were also of the view that the law governing the arbitration agreement was U.S. Law. It is only now, and when the petition was filed under Section 34 of the Act that the appellant takes a stand that Indian Law governs the arbitration agreement. We are clearly of the view that this is another factor and on the basis of the interpretation of the appellant itself that the law governing the arbitration agreement was U.S. Law and not the Indian Law. We, therefore, do not think that the actions of the appellant to justify and substantiate the joinder of respondent Nos.3 to 6 to the arbitration proceedings is irrelevant as contended by Mr Dada. It is not in dispute that the parties by contract can choose the law applicable to the arbitration agreement. This being the case, how the parties understood the contract is certainly a very relevant factor that would be taken into consideration before coming to the conclusion as to which law applies to the arbitration agreement. This being the case, we are clearly of the view that the arbitration agreement was not governed by Indian Law as contended by Mr Dada ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of repudiation, frustration or breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract. 13. Similarly, when an instrument or deed of transfer (or a document affecting immovable property) contains an arbitration agreement, it is a collateral term relating to resolution of disputes, unrelated to the transfer or transaction affecting the immovable property. It is as if two documents-one affecting the immovable property requiring registration and the other relating to resolution of disputes which is not compulsorily registerable-are rolled into a single instrument. Therefore, even if a deed of transfer of immovable property is challenged as not valid or enforceable, the arbitration agreement would remain unaffected for the purpose of resolution of disputes arising with reference to the deed of transfer. 33. As noted earlier clause 15 and which is the arbitration agreement between parties, clearly stipulates that the Aritrating Parties shall submit to a binding arbitration and the arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the Americ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Reliance II. The Supreme Court in this case was considering a case of a foreign seated arbitration where the arbitration agreement was prior to the judgment of the Supreme Court in the case BALCO. The Supreme Court, after discussing the law on the subject, at paragraph 21 held as under: 21. The last paragraph of BALCO [BALCO v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552 : (2012) 4 SCC (Civ) 810] judgment has now to be read with two caveats, both emanating from para 32 of Bhatia International [ Bhatia Internationalv. Bulk Trading S.A., (2002) 4 SCC 105] itself - that where the Court comes to a determination that the juridical seat is outside India or where law other than Indian law governs the arbitration agreement, Part I of the Arbitration Act, 1996 would be excluded by necessary implication. Therefore, even in the cases governed by the Bhatia [Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105] principle, it is only those cases in which agreements stipulate that the seat of the arbitration is in India or on whose facts a judgment cannot be reached on the seat of the arbitration as being outside India that would continue to be go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itration and Conciliation Act, 1996] which reads thus: (2) This Part shall apply where the place of arbitration is in India: Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognized under the provisions of Part II of this Act. 39. Section 2(2) of the Act falls in Part I of the Act and stipulates that Part I shall apply where the place of arbitration is in India. The proviso to Section 2(2) [and which was inserted by Act 3 of 2016 w.r.e.f. 23rd October, 2015], clearly carves out an exception as to which provisions of Part I would apply even though the place of arbitration was outside India. Those provisions are Sections 9, 27, 37(1)(a) and 37(3) of the said Act. From a plain reading of these provisions, two things become clear. Firstly, even the Act clearly stipulates that Part I would apply only where the place of arbitration is in India. Secondly, the proviso to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anr. [(2016) 11 SCC 508] (for short EITZEN Bulk ) . The Supreme Court in paragraph 34 of this decision has clearly held that as a matter of fact, mere choosing of a juridical seat of arbitration attracts the law applicable to said location. In other words, the Supreme Court held that it would not be necessary to specify which law would apply to the arbitration proceedings, since the law of that particular country would apply ipso jure. To buttress this finding the Supreme Court relied upon a passage from Redfern and Hunter on International Arbitration. Paragraphs 34 35 of this decision reads thus: 34. As a matter of fact the mere choosing of the juridical seat of arbitration attracts the law applicable to such location. In other words, it would not be necessary to specify which law would apply to the arbitration proceedings, since the law of the particular country would apply ipso jure. The following passage from Redfern and Hunter on International Arbitration contains the following explication of the issue: It is also sometimes said that parties have selected the procedural law that will govern their arbitration, by providing for arbitration in a particular co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with all the aforesaid decisions of the Supreme Court submitted that all these decisions have been referred to a larger bench in the case of Union of India Vs. Hardy Exploration and Production (India) Inc. [(2018) 7 SCC 374]. He therefore submitted that the issue is still at large before the Supreme Court. Firstly, we must mention that merely because an issue has been referred to a larger bench will not in any way prevent us from deciding the present issue. In any event, after this judgement was reserved on 14th September, 2018, we found that the reference made to a larger bench in Hardy Exploration has been decided by a three Judge Bench of the Supreme Court vide its decision dated 25th September, 2018 [2018 SCC OnLine SC 1640]. In view thereof, and after we noticed the three Judge Bench of the Supreme Court in Hardy Exploration, we placed this matter on board on 25th October, 2018 to give an opportunity to the parties to address us on this decision, though earlier a full hearing was over and the judgment was reserved. Accordingly, Mr Dada as well as Mr Chinoy have addressed us on the decision of the larger bench of the Supreme Court in Hardy Exploration. 44. The fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute by some authority to whom it is submitted under a valid law for disposal. The expression order must have also a similar meaning, except that it need not operate to end the dispute. Determination or order must be judicial or quasi-judicial. Jaswant Sugar Mills Ltd. v. Lakshmi Chand (Constitution of India, Article 136). A determination is a final judgment for purposes of appeal when the trial court has completed its adjudication of the rights of the parties in the action. Thomas Van Dyken Joint Venture v. Van Dyken. 45. What we find that is in the facts of the case in Hardy Exploration, the Supreme Court, after considering the arbitration clause and Article 20 of the UNCITRAL Model Law on International Commercial Arbitration, came to the conclusion that in the facts of that case, since only the venue was Kuala Lumpur and it was not the seat , the Courts in India had jurisdiction to entertain the challenge the award under section 34 of the Act. We must mention here that in the case of Hardy Exploration the arbitration agreement / clause was completely silent on which law was to govern the arbitration agreement. This is clear from paragraph 30 of this decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that Sumitomo has no applicability to a controversy under the 1996 Act. We therefore find that no assistance can be derived by Mr. Dada from the decision of the Supreme Court in the case of Sumitomo. 48. Even otherwise, assuming for the sake of argument that this judgment would apply, the same certainly does not fit into the facts and circumstances of the present case. Even assuming that the Curial Law ceases to apply after passing of the award, the Supreme Court in the case of Sumitomo has held that the law governing the arbitration agreement would continue to apply even after the passing of the award. In the facts of the present case, we have categorically found that the law governing the arbitration agreement was U.S. Law. This being the case, even if the ratio laid down in Sumitomo were to apply, in the facts of present case, we find that this judgment does not support the case of the appellant. We must point out that the Supreme Court in the case of EITZEN Bulk (in paragraph 34 thereof) has clearly laid down the law that once the party chooses the juridical seat of arbitration, the law applicable to said location / seat is automatically attracted and the law of that part ..... 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