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2004 (6) TMI 635

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..... applies to all arbitrations including those made in International Commercial Arbitrations taking place outside India. Part I includes section 34 and, therefore, the present petition is clearly maintainable. It is submitted that courts in India can examine the challenge against the impugned award that is governed by the India laws. 10. That this Hon'ble Court has the necessary territorial jurisdiction to entertain the present petition because inter alia, the agreements in question were entered in Bombay. It is submitted that the Arbitration Agreements were also entered in Bombay. Further, the principal officer of the respondent/claimant is also situated in Bombay. It is, therefore, submitted that the jurisdiction is with this Hon'ble Court. 3. This Court admitted this petition on 1st March, 2004. However, while admitting the petition this Court made it clear that though petition is admitted, the issue of maintainability is expressly kept open. This matter comes before me by virtue of two Notices of Motion taken out in the petition. In substance, the Notice of Motion prays that implementation and execution of the award be suspended pending hearing and final disposal of petit .....

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..... the case may be submitted to an Arbitration Institute which works in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce in Paris. The decision rendered by the three (3) arbitrators appointed in accordance with the said Rules shall be final and binding upon both parties, neither party shall seek recourse to a law Court or other authorities for revising the decision. Arbitration shall be held in Geneva, Switzerland and the arbitration fee shall be borne by the losing party. 6. It is stated in the petition that both the agreements are to be interpreted in accordance with laws of Republic of India. Even the terms of reference framed by Arbitral Tribunal with consent of parties expressly provided that:- The Tribunal will take account of the provisions of Chapter 12 of the Swiss Private International Law of 1987 as the seat of the arbitration is in Geneva, Switzerland, and at the time of the conclusion of the arbitration agreement neither party had its domicile or its habitual residence in Switzerland. The procedure of this arbitration shall be governed by the I.C.C Rules of Arbitration in force as from 1st January, 1998. In so far as those .....

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..... tends that under the 1996 Act an award made in the foreign/notified Countiy would be a foreign award irrespective of substantive law governing the contract or the law governing the arbitration agreement. He submits that the petition is filed on the basis that agreement between parties being governed by law of India, the award is a domestic award. According to Shri Chinoy this submission is fallacious. He submits that there is no question of substantive law deciding the issue of maintainability of petition. He submits that challenge to the award is one thing and resisting its enforceability is another. The Legislature in its wisdom has, qua a foreign award, only provided for mechanism to resist its execution or enforcement. The Legislature has taken care and permits parties to raise same grounds while resisting the enforcement or execution as are permissible to be raised while challenging a domestic award under section 34 of the 1996 Act. In other words, he submits that section 48 and more particularly section 48(1)(e) read with other substantive provisions makes it abundantly clear that although it is not permissible to challenge a foreign award, it could be resisted in its enforce .....

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..... class of local/domestic awards as foreign awards by including in from the definition of foreign award. After inviting in attention to the Convention and the provision of Foreign Act, Shri Chinoy contends that now the field is occupied and covered by section 48(1)(e) of the Act which is on par with Article V(1)(e) of the Convention. He submits that bare reading of section 48(1)(e) would demonstrate that a Foreign Award can be challenged in a country in which it was made or the Country under law of which it was made. It provides that if the award has been challenged or suspended or set aside by any of these two statutory recognised forums, then it will provide a defence to the recognition and enforcement of the award. In the present case, the award was made in Geneva, Switzerland which is admittedly a notified country. Therefore, it can be challenged only in Switzerland. Similarly, other forum is the Country under the law of which the award was made, which in the instant case, also is Switzerland and, therefore, the award could only be challenged in Swiss courts. He submits that having regard to this provision no proceedings to set aside or suspend the award can be filed in a Indian .....

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..... rt in the case of (Force Shipping Limited… v. Ashapura Minechem Limited….)8, reported in 2003 (6) Bom. C.R (O.O.C.J) 328 : 2003 Mh. L.J 329. This Court (Rebello, J.) held that even after the decision in Bhatia International's case, legal position is the same viz., that a foreign award cannot be challenged in India. By taking recourse to section 34 of the Act. 12. Summing up, Shri Chinoy contends that in similar cases before this Court:- (a) Awards had been made in foreign notified country though substantive law governing the contracts was Indian law. In such cases Court dismissed the petitions as not maintainable and accordingly did not consider the same on merits. (b) Present award has been made in Geneva, Switzerland against petitioner which is a German Company. (c) Petitioner has not challenged the award in Switzerland where it has become final; (d) Award is in force in Germany against petitioner. (e) Petitioner is resisting enforcement on the ground similar to section 48 of the Act. (f) At the same time, petitioner (German Company) is purporting to file this petition challenging foreign award made in Geneva in this Court Hence, the petition is not maintainable .....

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..... been perpetrated and the Court should not assist such litigant. In substance, Shri Dave contended that the conduct of respondent No. 1 is such that it is not entitled to raise the issue of maintainability of petition. Consequently, the objection raised on behalf of such a party should not be countenanced and entertained by this Court. 16. Alternatively, it is contended by Sir Dave that the 1996 Act allows filing of such a petition. He submits that the Act is a consolidated Act. He submits that Section 9(b) of the Foreign Act was introduced by way of abundant caution and its deletion does not alter the legal position. He further submits that equivalent provisions continue in Article 1(1) of New York Convention read with section 44 of the 1996 Act. Shri Dave submits that the manner in which Shri Chinoy reads 1996 Act is not proper and would defeat and frustrate the mandate of Legislature. 17. Shri Dave contends that the main object of the Legislature while introducing the 1996 Act is to consolidate and amend the law relating to domestic arbitration, international arbitration and enforcement of foreign Arbitral Awards as also to define the law relating to conciliation and for matters .....

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..... hat Part I thereof applies to all arbitrations outside India. Consequently, any award arising out of such proceedings would be an award which is capable of being challenged in Indian Court by invoking section 34 of the 1996 Act. In order words, such award is nothing but a domestic award. 18. He submits that governing law of contract is the test. Substantive law of agreement/underlying contract would govern all matters including challenge to the Arbitral Award, which is part and parcel of the substantive contract, he submits that any other interpretation would mean that even though, the underlying contract is governed by Indian Law, merely because the venue or place of arbitration is outside India, the award becomes a foreign award, incapable of being challenged in India under 1996 Act. He submits that this would cause severe injustice and grave prejudice to parties who choose to govern the underlying contract by Indian Laws. The very concept of applying Indian Laws to underlying contract would be rendered useless and redundant if the award arising out of an arbitration agreement contained in any such contract delivered outside India cannot be challenged in India. In other words, th .....

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..... cided on the touch stone of law and not by considering the conduct of party raising them. No general rule can be laid down and the matter is to be considered on the facts of each case. The conduct may be or may not be blameworthy or reprehensible but ultimately if the Court does not have jurisdiction and proceedings are not maintainable, then it is wholly irrelevant. Suffice it to state that if the action and conduct is such as would amount to perjury or contempt, then even if the main petition is not maintainable, the Court is not powerless to initiate proceedings to punish the guilty. That apart, respondent No. 1 is a party to the petition. It is the successful party in Arbitral proceedings. The deed of assignment dated 25th November, 2003 executed by it in favour of respondent No. 2 is also challenged by the petitioner. In these circumstances, respondent No. 1 cannot be precluded from raising the issue of jurisdiction and maintainability. 23. For properly appreciating rival contentions, a reference to section 34 of the 1996 Act is necessary. Bare perusal of the same would indicate that recourse to a Court against an Arbitral Award may be made only by an application for setting a .....

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..... ile considering the present controversy. Both sides do not dispute before me that the award is foreign award. 25. Section 45 of the 1996 Act opens with a non obstante clause which overrides what is contained in Part I of the 1996 Act or C.P.C The moment Judicial Authority when seized of an action in a matter in respect of which parties have made an agreement referred to in section 44 is approached at the request of one of the referring parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed it should refer the matter to Arbitration under such agreement. In other words, once an agreement referred to in section 44 is made, it becomes clear that the difference between persons arising out of legal relationship whether contractual or not but considered as commercial under the law in force in India are referred to arbitration in pursuance of an agreement in writing for arbitration to which convention in the First Schedule applies. The resultant award is a foreign award. However, a Judicial Authority can find out whether the agreement to refer matters to arbitration is null and void, in operative or incapable of being p .....

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..... and cannot be read in isolation, Shri Chinoy submits that whichever way one reads it, a foreign award cannot be challenged in India but its enforceability only can be resisted here. In the context of these submission, the matter will have to be examined. 28. In the case of Bhatia International (supra), the Supreme Court was considering as to whether it is permissible for a party to an arbitral proceedings held outside India to apply for interim reliefs under section 9 of 1996 Act (falling in Part I) against its counter part, which is an Indian party by applying to an Indian Court. Several High Courts held that it is not permissible to do so. The Supreme Court after analysing scheme of the Act and referring to some of the decisions which were brought to my notice, in paras 23, 26 and 32 has held thus:- 23. That the legislature did not intend to exclude the applicability of Part I to arbitrations, which take place outside India, is further clear from certain other provisions of the said Act. Sub-section (7) of section 2 reads as follows:- 2(7) An Arbitral Award made under this part shall be considered as a domestic award. As is set out hereinabove the said Act applies to (a) arbitrat .....

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..... or that reason special provisions for enforcement of foreign awards are made in Part II. To the extent that Part II provides a separate definition of an Arbitral Award and separate provisions for enforcement of foreign awards the provisions in Part I dealing with these aspects will not apply to such foreign awards. It must immediately be clarified that 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. 32. To conclude, we hold that the provisions of Part I would apply to all arbitrations and to all proceedings relation thereto. Where such arbitration is held in India the provisions of Part I would compulsorily apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part I. In cases of international commercial arbitrations held out of India provisio .....

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..... decision in a judgement of co-ordinate Court is biding upon me. In the instant case, there is not one but three decisions in the field. The last of the decision is after the judgements of Supreme Court in Bhatia International's case. This Court (Rebello, J.) after noticing the judgement of the Supreme Court and referring to a passage therein observed in para 2 thus:- 2. At the hearing of the petition, the learned Counsel for the parties have relied on judgements which will be adverted to, to the extent they are necessary in the course of the judgment. In the first instance, it will be necessary to consider the judgment of the Apex Court in Bhatia International (supra) to find out whether it supports the contentions as canvassed before this Court by the learned Counsel for the respondent. At the stage of admission there was another petition also before this Court wherein a foreign award had been challenged under section 34 of the Arbitration and Conciliation Act, 1996 relying on the judgement in Bhatia International (supra). It was in that context and as it was contended that the judgement in Bhatia requires consideration that this petition as well as other petitions were admitt .....

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..... would not apply. Under Part I a decree can be executed only if the challenge under section 34 fails if made. Under section 48, the foreign awards become enforceable and is to be executed as a decree. (c) On the consideration of the law set out in paragraph 28 in so far as application of section 9 is considered, it holds that section 9 would not apply in so far as foreign awards are concerned after the award is made. From the judgment in Bhatia, therefore, these are three major propositions which can be culled out. Once that be the case, the first contention advance on behalf of the respondent opposing enforcement of the foreign award must be rejected. 31. With respect, apart from the fact that this decision is binding upon me, in my view, it correctly summarises the legal position after the Supreme Court decision in Bhatia International's case. If the passages in Bhatia's case reproduced by me above are read in the backdrop of Part II of the 1996 Act, the conclusion is inescapable that parties by Agreement, whether express or implied, can exclude applicability of part I of this Act in International Commercial Arbitrations. Therefore, this decision will have to be applied i .....

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..... third party. 26. Whereas, as stated above, the proper law of arbitration (i.e, the substantive law governing arbitration) determines the validity, effect and interpretation of the arbitration agreement, the arbitration proceedings are conducted, in the absence of any agreement to the contrary, in accordance with the law of the country in which the arbitration is held. On the other hand, if the parties have specifically chosen the law governing the conduct and procedure of arbitration, the arbitration proceedings will be conducted in accordance with that law so long as it is not contrary to the public policy of the mandatory requirements of the law of the country in which the arbitration is held. If no such choice has been made by the parties, expressly of by necessary implication, the procedural aspect of the conduct of arbitration (as distinguished from the substantive agreement to arbitrate) will be determined by the law of the place or seat of arbitration. Where, however, the parties have, as in the instant case, stipulated that the arbitration between them will be conducted in accordance with the I.C.C Rules, those Rules, being in many respects self-procedure, will govern the .....

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..... of section 2, which is relevant for considering the question, reads as under:- 2(2) This part shall apply where the place of arbitration is in India . 8. As observed above, the present petition has been filed by the petitioner under the provisions of section 34 of the Arbitration Act. Perusal of the Scheme of the Arbitration Act shows that, Part I of the Arbitration Act is divided into 10 chapters. Sections 2 to 6 are to be found in Chapter I; sections 7 to 9 are to be found in Chapter II; sections 10 to 15 are to be found in Chapter III; section 20 is to be found in Chapter V and section 34 is to be found in Chapter II. Thus, section 34 is to be found in Part I of the Arbitration Act. Sub-section (7) of section 2 lays down that an Arbitral Award made under this part shall be considered as a domestic award . It is clear that if the place of arbitration is in India, the process of making an award is governed by the provisions of Part I of the Arbitration Act irrespective of the agreement between the parties in that regard. Section 31 lays down the manner in which the Arbitral Award is to be made and thereafter, section 34 vests power in the Court to set aside the Arbitral Award. It .....

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..... ndia, provided, the substantive law in force in India provides for such a challenge. The question, whether such a law is in force in India or not or under which law in force in India, the petitioner can challenge the ward is neither raised nor does it fall for consideration before me in the present petition. The only question debated before me is whether such a challenge is possible by filing an application under section 34 of the Act. I have already observed above that considering the scheme of Part I of the Act, such a challenge is not possible in an application filed under section 34 of the Act. 10. The learned Counsel for the petitioner submits, as literal construction of the provisions of section 2(2) of the Act, leads to the conclusion that, the petitioner is rendered without a remedy to challenge the validity of the Award, the provisions of section 2(2) of the Act, should be so construed, as to mean that only for application of procedural provision of Part I holding of the arbitration in India is necessary and not the substantive provision of Part I. It is submitted, that the provision of section 2(2) of the Act should be construed to be only inclusive, in the sense that, it .....

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..... legislature to be collected from the scheme of the statute itself or leads to any manifest absurdity or repugnancy. It appears from the reading of the Act that in so far as the challenge and enforcibility is concerned, there are different schemes for a domestic award and a foreign award. The Act provides for a direct challenge to a domestic award (section 34). A domestic award is, enforceable as a decree passed by a Civil Court, after the period provided for challenging the same is over, and in case it is challenged, after the challenge fails (section 36). Whereas in so far as the foreign award is concerned, it is not enforceable in India unless the Court finds that it is enforceable. For that purpose, the party which seeks its enforcement has to make an application to the Court, and has to satisfy the Court about its enforcibility (section 49). It is only after the party satisfies the Court that a foreign award becomes enforceable as a decree passed by a Civil Court (section 49). The Act provides different remedies to persons, against whom domestic award is made and person against whom foreign award is made. A person against whom a domestic award is made, has to immediately approa .....

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..... Exception to this could only be if the decisions are per incuriam. The binding effect of a decision of co-ordinate Court is not lost merely because it did not consider or did not notice any aspect or principle of law unless it could be demonstrated that the decision is rendered per incuriam. Per incuriam is ignorance of a statutory provision or a binding decision interpreting the same of a higher Court. 34. It is pertinent to note that submission of Shri Dave is that these decisions have not properly appreciated the law laid down by the Supreme Court in N.T.P.C, Sumitomo and Bhatia International and thus have failed to apply the same to the facts before them. It is not permissible for me to accept this submission of Shri Dave in the context of what is observed hereinabove. In the case of (Panjumal Hassomal Advani v. Harpal Singh Abnashi Singh*)9, reported in A.I.R 1975 Bom. 120 a Division Bench of this Court had the following to say about law of precedents in para 11: 11. Now, it is well settled that normally one Division Bench of a High Court cannot take a view contrary to the decision given by another Bench of that Court. (Shri Venkateshwara Rice, Gining and Groundnut Oil Mill C .....

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..... Bom. L.R 777 which was binding, being a decision of a Division Bench of the Bombay High Court, was no longer good law. But then, it is equally well settled that an interpretation (and equally a misinterpretation) of a binding decision of the Supreme Court will itself be binding subsequently on co-ordinate courts and must be got corrected by a higher Court, and no co-ordinate Court on that ground may refuse to follow an earlier decision, opining that in its view the said earlier decision had wrongly understood or improperly applies a decision of a high or Court. The proposition of law as to be found in Halsbury's Laws of England (third edition) Volume 22, at page 800 reads as follows:- Even if a decision of the Court of Appeal has misinterpreted a previous decision of the House of Lords, the Court of Appeal must follow its previous decision and leave the House of Lords to rectify the mistake. Following this, in our opinion the same salutary principle must be adopted and applied here, Both as to the true ratio of (Deocan Merchants Co-operative Bank Ltd. v. Dalichand Jugraj Jain)15, A.I.R 1969 S.C 1320 and the effect of Sabharwal case, (1973) 3 SCC 750 : A.I.R 1972 S.C 1893, we m .....

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..... d by an analysis of the material facts of the case-that is, generally, those facts which the Tribunal whose decision is in question itself holds, expressly or implicitly, to be material. 37. Similarly in the case of (Fuzlaunbi v. K. Khader Vali)18, reported in (1980) 4 SCC 125, the Supreme Court has held:- We need not labour the point because this Court has already interpreted section 127(3)(b) in Bai Tahira and no Judge in India, except a larger Bench of the Supreme Court without a departure from judicial discipline can whittle down, wish away or the unbound by the ratio thereof. The language used is unmistakable, the logic at play is irresistible, the conclusion reached is inescapable, the application of the law as expounded there is an easy task. And yet, the Division Bench, if we may with respect say so, has, by the fine art of skirting the real reasoning laid down unlaw in the face of the law in Bai Tahir which is hardly a service and surely a mischief, unintended by the Court may be, but embarrassing to the subordinate judiciary. 38. This decision is clearly distinguishable. There, a Division Bench of a High Court misinterpreted a binding judgment of the Supreme Court. The Su .....

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..... l objections have been upheld. Therefore, I am bound by them. After holding that I am bound by them, naturally, I have to hold that present petition filed under section 34 of the 1996 Act challenging a foreign award is not maintainable. 40. Considering the conclusion reached by me, it is not necessary to decide the wider issue posed for my consideration by Shri Chinoy. The propositions in that behalf are culled out by me above. Shri Chinoy contends that the cases where the arbitration has one governing law, the underlying contract has another and the procedural law of a third country is applied, are held to be very rare and once in blue moon situations. Reliance in that behalf is placed on the decision of Supreme Court in the case of O.N.G.C (supra) (1987) 1 SCC 496. However, I need not decide this issue in the facts and circumstances of the present case. I leave it open for decision in an appropriate case. More so, then in the case before me it is not disputed that although Indian law governs underlying contract, the law of arbitration and the procedural law is Swiss law. Hence, a challenge to the Arbitral Award dated 21st October 2003 can only be raised in terms of section 48(1)( .....

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