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TMI Blog1969 (10) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... ronologically are as follows: A contract was entered into on February 2, 1965, between the Indian and the Russian firms for the supply of earth-moving machinery for a value of Rs. 66,09,372.00. The machinery was required by the Indian firm for executing the work of excavation of a feeder canal as part of the Farakka Barrage Project. On June 9, 1965. the Indian firm opened a Letter of Credit with the Bank of India Ltd., for the entire value of the machinery in favour of the Russian firm. The consignments started arriving at Calcutta in October 1965. On February 22, 1966, the Indian firm wrote to the Russian firm saying that there was something wrong with the design and working of motorised scrapers which had been supplied and which formed one of the items of machinery covered by the contract. One June 6, 1966 came the devaluation of the Indian rupee by 57.48% as a result of which the amount that became payable by the Indian firm to the Russian firm under the contract increased by Rs. 25 lakhs or so. On June 20, 1966, the Russian firm demanded an increase in the Letter of Credit owing to the devaluation. On August 1, 1966, the Indian firm served a notice on the Russian firm containin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suit under Section 3 of the Act was dismissed by Ramamurthi J., on April 12, 1968. The application of the Indian firm for an interim injunction restraining the Russian firm from taking any further part in the arbitration proceedings at Moscow was, however, granted. The Russian firm preferred appeals against the orders of the learned single judge before a division bench. The bench maintained the orders of Ramamurthi, J. The present appeals have been brought by the Russian firm by special leave both against the order of the division bench and against the judgment of the learned single judge. This was presumably done because there was some controversy about the finality of the orders which had been made by the single judge of the High Court. 5. The questions which have to be determined in these appeals are quite narrow. The first question is whether the words "a submission made in pursuance of an agreement" mean an actual or completed reference made pursuant to an arbitration agreement or they mean an arbitration agreement that has come into existence as a result of a commercial contract. According to the appellant firm whenever there is an arbitration agreement or an arbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Geneva Convention On the Execution of Foreign Arbitral Awards to which India was a party and which was given effect to in India by the Arbitration (Protocol and Convention) Act, 1937. 7. The provisions of the Act may be noticed. Sections 2 and 3 are in these terms: Section 2 "In this Act unless the context otherwise requires, "foreign awards" 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 territories to which the said Convention applies." Section 3 "Notwithstanding anything contained in the Arbitration Act, 1940, or in the CPC, 1908, if any party to a submission made in pursuance of an agreement to which the Convention set forth in the Schedule applies, or any person claiming through or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other matter capable of submission by arbitration whether or not the arbitration was to take place in a country to whose jurisdiction none of the parties was subject. Article 4 of the Protocol was as follows: The tribunals of the Contracting Parties, on being seized of a dispute regarding a contract made between persons to whom Article applies and including an arbitration agreement whether referring to present or future differences which is valid in virtue of the said Article and capable of being carried into effect, shall refer the parties on the application of either of them to the decision of the arbitrators. ... In order to give effect to this Protocol the Arbitration Clauses (Protocol) Act, 1924 was enacted in England. Section 1(1) of that Act contained provisions similar to Section 3 of the Act with certain differences. When the aforesaid Act of 1924 was enacted the meaning of "submission" as contained in Section 27 of the English Arbitration Act, 1889 was "a written agreement to submit present or future differences to arbitration whether an arbitrator was named therein or not." 9. The Arbitration (Foreign Awards) Act, 1930 was enacted to give effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tocol of 1923 and the Convention of 1927 were appended as Schedules to this Act. So far as the ordinary arbitration law was concerned, prior to the enactment of the Indian Arbitration Act, 1940 there were two sets of laws applicable to what were called Presidency towns and areas which did not fall within those towns. The Indian Arbitration Act, 1899 applied to cases where the subject matter submitted to arbitration was of a nature that if a suit were to be instituted it could be instituted in a Presidency town. Section 4(b) contained the definition of the word "submission" which was similar to the definition in the English Act of 1889. In the Civil Procedure Code of 1882 Part V dealt with arbitration. These provisions were applicable to such areas which were outside the Presidency towns. When the Civil Procedure Code, 1908 was enacted it contained in the IInd Schedule similar provisions for arbitration. There was, however, no definition of "submission" or "arbitration agreement". The Arbitration Act, 1940 was meant to consolidate and amend the law relating to arbitration in India. The word "submission" was not defined but the word "arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... followed by an actual "submission" made "pursuant to" it. (Presumably, the word "submission" here bears its natural meaning, of "a submission written or not) of an actual dispute to the authority of an arbitral tribunal, "rather than the statutory meaning which it bore under the 1889 Act and which is now borne by the phrase "arbitration agreement)". Thus the common case, of an agreement to refer which is never followed by a submission because the claimant prefers to sue instead, is apparently outside the section, although the Protocol clearly meant it to be covered; see the French text of Article 4. The English translation of the French text in the 1950 Act has been stated to be a mistranslation. It has been suggested that the Parliament may have enacted not the true text of the Protocol but a very limited interpretation of the false translation. In Halsbury's Laws of England, Third Edn., Cumulative Supplement 1968, Vol. II, Arbitration, p. 2, reference has been made to the decision of Scarman J., in The Merak(1965) 2 W.L.R. 250 which was affirmed on appeal and which has been followed in Unipat A.G. v. Dowry Hydraulic Units[196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be inconsistent with the comity of nations or with the established principles of International Law. But this principle applies only where there is an ambiguity and must give way before a clearly expressed intention. If statutory enactments are clear in meaning, they must be construed according to their meaning even though they are contrary to the comity of nations or International Law. 15. We may look at another well recognised principle. In this country, as is the case in England, the treaty or International Protocol or convention does not become effective or operative of its own force as in some of the continental countries unless domestic legislation has been introduced to attain a specified result. Once, the Parliament has legislated, the Court must first look at the legislation and construe the language employed in it. If the terms of the legislative enactment do not suffer from any ambiguity or lack of clarity they must be given effect to even if they do not carry out the treaty obligations. But the treaty or the Protocol or the convention becomes important if the meaning of the expressions used by the Parliament is not clear and can be construed in more than one way. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lligible and completely ambiguous. It is difficult to comprehend in that case why the Legislature should have used the words which follow the term "submission", namely, "made in pursuance of an agreement". This brings us to the true import of the expression "agreement". If by "agreement" is meant a commercial contract of the nature mentioned in the "Merak", the words "made in pursuance of" convey no sense. Another anomaly which militates against the established rule of interpretation would arise if by the word "agreement" is meant a commercial contract. It cannot, even by stretching the language bear that meaning in the second part of Section 3 which reads: ... The court unless satisfied that the agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred shall make an order staying the proceedings. Here "agreement" can have reference to and mean not the commercial contract to which the convention set forth in the Schedule applies but only the agreement to refer or the arbitral cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in letter and spirit. But we are bound by the mandate of the legislature. Once it has expressed its intention in words which have a clear signification and meaning, the courts are precluded from speculating about the reasons for not effectuating the purpose underlying the Protocol and the conventions. The consistent view of the Indian courts on the interpretation of the critical words in Section 3 of the Act of 1937 has not been in favour of what prevailed in the "Merak". In the leading case in W. Wood & Son Ltd. v. Bengal Corporation AIR1959Cal8 , Chakravarti C.J. while delivering the judgment of the court, examined the various aspects of the question including the terms of the Protocol of 1923 and the Convention of 1927 and said: If the agreement to which the Protocol applies is an agreement for arbitration, there cannot possibly be an agreement in pursuance of that agreement. Section 3 must, therefore, be construed as contemplating a case where not only is there an arbitration agreement in force between the parties but there has also been an actual reference to arbitration. 18. The learned Single Judge has given some reasons why in England as also in India the Statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd and India must be presumed to have been aware when the English Act of 1950 and the Act were enacted that the expression 'submission' had been abandoned in the Arbitration Acts and, instead, the term 'arbitration agreement' had come to be defined as meaning what submission meant according to the definitions in the English Act of 1889 and Indian Arbitration Act of 1899. Notwithstanding this, the expression 'submission' was employed in Section 4(2) of the English Act of 1950 and Section 3 of the Act. If the intention was to have the wider meaning the proper and correct term to use was "arbitration agreement" and logically those words would have been employed. It is more plausible that the Parliament by retaining the expression 'submission' wanted to give it the meaning of an actual submission, as by then there had been firm expression of opinion in the well-known work of Russell on Arbitration and by jurists like Prof. Arthur Nassbaum in an article "Treaties on Commercial Arbitration" in Vol. 56 of the Harvard Law Review, pointing to that meaning being given to 'submission'. In India, the High Courts had uniformly and in u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he position taken up in the plant was that the Russian Firm was carrying on business in the U.S.S.R. and at Madras. The controversy before the High Court appears to have been confined only to what is stated in Para 5 of the counter-affidavit of the Russian Firm, namely, that in the presence of the Arbitration agreement in the contract entered into between the parties, the only proper remedy for the Indian Firm was to submit the disputes to the arbitration tribunal at Moscow. 24. The rule as stated in Halsbury's Laws of England, Vol. 21, at page 407, is that with regard to foreign proceedings, the court will restrain a person within its jurisdiction from instituting or prosecuting suits in a foreign court whenever the circumstances of the case make such an interposition necessary or proper. This jurisdiction will be exercised whenever there is vexation or oppression. In England, Courts have been. very cautious and have largely refrained from granting stay of proceedings in foreign Courts (Cheshire's Private Industrial Law, 7th Ed. pages 108-110). The injunction is, however, issued against a party and not a foreign court. 25. Although it is a moot point whether Section 35 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the disputes from getting the matter decided by the tribunal so long as the suit here is pending and has not been disposed of. 28. In this context, we cannot also ignore what has been represented during the arguments. The current restrictions imposed by the Govt. of India on the availability of foreign exchange of which judicial notice can be taken will make it virtually impossible for the Indian Firm to take its witnesses to Moscow for examination before the Arbitral tribunal and to otherwise properly conduct the proceedings there. Thus, the proceedings before that tribunal are likely to be in effect ex parte. The High Court was, therefore, right in exercising discretion in the matter of granting an interim injunction in favour of the Indian Firm. 29. The appeals fail and are dismissed but in view of the peculiar nature of the points involved, there will be no order as to costs. VAIDYNATHIER RAMASWAMI, J. 30. I regret I am unable to agree with the judgment pronounced by Grover, J. 31. The first respondent had entered into a contract with the Government of India for the excavation work in the feeder canal of the Farakka Barrage project. To fulfil this contract with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34 of 1966 in the Madras High Court and obtained an ex parte injunction against the appellant and the second respondent restraining them from negotiating the letter of credit. The appellant protested that the first respondent should not have instituted a suit in violation of the arbitration clause in the contract. By a subsequent agreement dated August 14, 1966 the appellant and the first respondent agreed to settle the matter amicably in accordance with the contract. The appellant consented to extend the payment of letter of credit by one year and the first respondent thereupon withdrew the suit in C.S. 134 of 1966. The respondent No. 1 is said to have accepted the devaluation drafts representing increase in the price of the machinery consequent on the devaluation of the Indian rupee in accordance with the clause in the contract. Though correspondence was going on between the parties, no settlement could be arrived at. When the time came for the payment of the balance of 75% of the letter of credit the first respondent instituted a suit C.S. 118 of 1967 in the Madras High Court in violation of the arbitral clause and obtained an ex parte injunction against the appellant from opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred shall make an order staying the proceedings. 33. Section 3 refers to the Convention which is set forth in the Schedule. It is an international protocol to which this country was a signatory and which was effected at New York on June 10, 1968. Article 2 of this Convention Has three clauses and reads as follows: 1. Each Contracting State shall recognise an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of defined legal relationship, whether contractual or not, concerning a subject-matter capable of settlement by arbitration. 2. The term "agreement in writing" shall include an arbitral clause in a contract, or an arbitration agreement signed by the parties or contained in an exchange of letters or telegrams. 3. The Court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fference to arbitration whether an arbitrator is named therein or not. There is no definition of "agreement" as such and no difference is made between a mere arbitral clause that is an agreement to refer to an arbitration and an actual submission to arbitration after the disputes have arisen. A submission defined by Section 27 comprehends both, meanings. Section 4 of the 1889 Act provided that if any party to a submission commenced any legal proceedings against any other party to a settlement the latter may apply to the court concerned to stay the proceedings and the court if it is satisfied that there is no reason why the matter should not be referred in accordance with the submission may make an order staying the proceedings. In the Indian Arbitration Act of 1889 Section 4(b) defines "submission" in exactly the same terms as Section 27 of the English Act of 1889, that is, a submission means a written agreement to submit present or future differences to arbitration whether an arbitrator is named or not. In the Arbitration Clauses (Protocol) Act of 1924 (14 & 15 Geo. V c. 39) we have the phrase "submission made in pursuance of an agreement" and the ph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointment of receiver, orders for preservation of properties or for protecting rights of parties etc. Section 21 of this Act defines the expression "arbitration agreement" to mean a written agreement to submit present or future differences to arbitration whether an arbitrator is named or not. Nothing was said about the definition of "submission" in Section 27 of the Act of 1889. Virtually the effect is that in the place of the word "submission" the phrase "arbitration agreement" is substituted and has a synonymous meaning. 37. In India the Arbitration Act, 1889 was repealed and replaced by the Arbitration Act of 1940. The Act dealt with only municipal or local arbitrations and so far as foreign arbitration was concerned, the Indian Protocol Act of 1937 (Act 6 of 1937) was enacted. Section 3 of this Act states: Notwithstanding anything contained in the Arbitration Act, 1899, or in the CPC, 1908, if any party to a submission made in pursuance of an agreement to which the Protocol set forth in the First Schedule as modified by the reservation subject to which it was signed by India applies, or any person claiming through or under him, comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw of the country in which the award is sought to be relied upon; (c) That the award has been made by the Arbitral Tribunal provided for in the submission to arbitration or constituted in the manner agreed upon by the parties and in conformity with the law governing the arbitration procedure; (d) That the award has become final in the country in which it has been made, in the sense that it will not be considered as such if it is open to opposition, appeal or pourvoi en cassation (in the countries where such forms of procedure exist) or if it is proved that any proceedings for the purpose of contesting the validity of the award are pending; (e) That the recognition or enforcement of the awards not contrary to the public policy or to the principles of the law of the country in which it is sought to be relied upon. It should be noticed that Article 1 of the 1927 Convention defines an "arbitration agreement" as "a submission to arbitration. 38. The next event in the legislative history is the New York Convention adopted at the United Nations Conference in June. 1958 on International and Commercial Arbitrations. It was felt that the international conventions up ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opening words of the section means an agreement to refer to arbitration and the words "the agreement to which the Convention set forth in the schedule applies" mean the business agreement or contract containing the arbitral clause. It follows, therefore, that if there is an arbitral clause whether this is followed by actual reference to arbitration or not, the very existence of this clause in the commercial agreement would render the stay of the suit mandatory under Section 3 of the Act. 40. The view that I have expressed is also consistent with the rule of construction that as far as practicable the municipal law must be interpreted by the courts in conformity with international obligations which the law may seek to effectuate. It is well settled that if the language of a section is ambiguous or is capable of more than one meaning the protocol itself becomes relevant for there is a prima facie presumption that parliament does not intend to act in breach of international law, including specific treaty obligations. In the words of Diplock, L.J. in Salomon v. Commissioners of Customs and Excise[1966] 3 All E.R. 877 If the terms of the legislation are clear and unambiguou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , issued a writ claiming damages from the Merak's owners, who relying on the arbitration clause, moved for a stay of the proceedings under Section 4 of the Arbitration Act, 1950. The plaintiffs opposed the motion on the grounds that the arbitration clause was not incorporated in the bills of lading; that the dispute did not arise out of the April charterparty or any bills of lading issued thereunder; and that the arbitration clause must in any event be rejected because it was repugnant to the paramount clause giving effect to the Hague Rules, which by article HI, rule 6 provided for bringing 'suit' and not for arbitration. Scarman J. holding that Section 4(2) of the Arbitration Act, 1950 gave effect to the intention of the protocol on arbitration clauses to which the Sub-section related, rejected the plaintiffs' contentions and stayed the proceedings. In the course of his judgment Scarman J., observed as follows: In my opinion, the Sub-section must be read together with the protocol as it stands translated into the English of the First Schedule to the Act. Article 1 of the translated protocol provides for the recognition of the validity of an agreement whether rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section, was an Act to give effect to the protocol and there is respectable, though now antiquated, authority, namely, the repealed Section 27 of the Act of 1889, for giving a wider meaning to 'submission' if the context so requires. The term 'submission to arbitration' is not now defined by statute, and must, in my opinion, be given a meaning appropriate to its context. While, no doubt, it is often convenient to use the term to distinguish an actual reference of a particular dispute to arbitration from an 'arbitration agreement' it would be wrong so to do in construing this particular subsection. Accordingly, I find myself able to say that the subsection gives effect to the intention of the protocol, the intention clearly being that when there is a business contract between parties subject to different contracting states those parties are to be referred to arbitration if they have so agreed, whether their agreement relates to present or future differences. The same view is expressed in Dicey & Morris, The Conflict of Laws, 8th edn. p. 1075: Section 4(2) of the Act imposes upon the court a duty to stay the proceedings if a party relies on 'a submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there was a presumption that the legislature in re-enacting a section of the law must be presumed to have been aware of the intervening judicial interpretation and to have given its approval to it. The classic statement of the rule is that James L.J. in Ex. p. Campbell[1870] L. R. 5 Ch. 706 Where once certain words in an Act of Parliament have received a judicial construction in one of- the Superior Courts, and the Legislature has repeated them without any alteration in a subsequent statute, I conceive that the legislature must be taken to have used them according to the meaning which a Court of competent jurisdiction has given them. But the rule is better and more moderately stated by the Judicial Committee in Webb v. Outrim [1907] A.C.81 where the words of Griffith C.J. in the Australian case D'Emdon v. Pedder[1904] 1 C.L.R.91 are adopted: "When a particular form of legislative enactment, which has received authoritative interpretation, whether by judicial decision or by a long course of practice is adopted in the framing of a later statute, it is a sound rule of construction to hold that the words so adopted were intended by the Legislature to bear the meaning whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning judicial interpretation and set its sea] of approval upon it. In R. v. Bow Road Domestic Proceedings Court[1958] 2 All. E. R. 89 at 911 Lord Denning pointed out that though the decision in R. v. Blane[1849] Q. B.769 stood for over 100 years, if it was quite an erroneous precedent, the fact that Parliament had re-enacted the provisions of the statute, did not authorise the erroneous interpretation. 45. It is, however, maintained by the respondent that the words "submission" and "agreement" must be given their natural and grammatical meaning and the word "submission" made in pursuance of an agreement" can only mean an actual submission of the disputes to the arbitral tribunal. So the word "agreement" can have reference to and can be construed only in the sense of an arbitration agreement or arbitral clause in a commercial contract. It cannot mean a commercial contract because an arbitration agreement cannot be stated to have been made pursuant to a commercial contract. The contention is that if submission has to be taken in the sense of an arbitration agreement it would render the words "submission made in pursuance of an agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pending in the Madras High Court on the ground that in terms of the Contract dated February 2, 1965 the parties expressly agreed that all disputes arising out of the contract should be settled by arbitration by the Foreign Trade Arbitration Commission of the U.S.S.R. Chamber of Commerce at Moscow. 47. It is not, however, possible to decide these appeals finally because the respondent has opposed the application for stay on other grounds also. Ramamurti, J., found that the arbitral clause in the contract of February 2, 1965 had ceased to be effective as between the parties as a result of the agreement dated August 14, 1966 Ex. P-32 "and that it will be wholly unrealistic... to hold that the moment an amicable settlement as provided in Ex. P-32 proved futile, the entire contract, Ex. P-4 revived. On the further aspect that admittedly Section 3 itself contains an exception that the mandatory obligation to stay is not incumbent on the court if the court is satisfied that "the agreement is null and void, inoperative or incapable of being performed" Ramamurti, J. was apparently of the view that the alleged nullity of the contract on the basis of mutual mistake was a matte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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