2014 (2) TMI 1170 - SC - Indian Laws

Arbitration Upheld Over Court Jurisdiction in IPLA Contract Dispute

ENERCON (INDIA) LTD. & ORS. Versus ENERCON GMBH & ANR

ENERCON (INDIA) LTD. & ORS. Versus ENERCON GMBH & ANR - 2014 AIR 3152, 2014 (2) SCR 855, 2014 (5) SCC 1, 2014 (3) JT 49, 2014 (2) SCALE 452 Issues Involved:1. Validity and conclusion of the IPLA contract.2. Jurisdiction to decide the validity of the IPLA contract.3. Existence of an arbitration agreement.4. Workability of the arbitration clause.5. Determination of the seat of arbitration.6. Concurrent jurisdiction of Indian and English courts.7. Entitlement to anti-suit injunction.Detailed Analysis:Issue (i): Validity and Conclusion of the IPLA Contract:The court examined whether the IPLA (Intellectual Property License Agreement) was a valid and concluded contract. The appellants argued that the IPLA was not a concluded contract as it was not in consonance with the Agreed Principles and contained discrepancies. The respondents contended that the IPLA was a concluded contract as it was signed by the parties. The court found that the parties had irrevocably agreed to resolve disputes through arbitration, as evidenced by the Heads of Agreement dated 23rd May 2006, which stated that Clause 18 of the proposed IPLA would apply to settle any disputes. The court concluded that the issues raised about the non-existence of a concluded contract were irrelevant for making a reference to arbitration.Issue (ii): Jurisdiction to Decide the Validity of the IPLA Contract:The court held that the issue of whether there is a concluded contract between the parties can be left to the Arbitral Tribunal. The court emphasized that the arbitration agreement is independent of the underlying contract, and the intention of the parties to arbitrate must be upheld. The court referred to Section 16 of the Indian Arbitration Act, 1996, which provides that the arbitration clause forming part of a contract shall be treated as an agreement independent of the contract.Issue (iii): Existence of an Arbitration Agreement:The court found that there was a valid arbitration agreement between the parties. The arbitration clause in the IPLA was very widely worded and included all disputes concerning the legal relationship between the parties. The court emphasized the overarching policy of least intervention by courts in matters covered by the Indian Arbitration Act, 1996. The court concluded that the arbitration agreement would not perish even if the IPLA had not been finalized.Issue (iv): Workability of the Arbitration Clause:The court addressed the concern that the arbitration clause was unworkable. The Bombay High Court had held that the arbitration clause was workable as two arbitrators were to be appointed by the licensors and one by the licensee. The Supreme Court disagreed with this conclusion, noting that the respondents had not supported this reasoning. The court emphasized adopting a pragmatic approach to make the arbitration clause workable within the permissible limits of the law. The court applied the 'officious bystander' principle to supply the missing line in the arbitration clause, making it workable.Issue (v): Determination of the Seat of Arbitration:The court examined whether the seat of arbitration was in London or India. The court found strong indicators suggesting that the parties always understood that the seat of arbitration would be in India and that London was only a convenient venue for arbitration proceedings. The court noted that all three applicable laws (the law governing the contract, the law governing the arbitration agreement, and the curial law) were Indian laws. The court concluded that the seat of arbitration was in India.Issue (vi): Concurrent Jurisdiction of Indian and English Courts:The court held that the Bombay High Court erred in concluding that the courts in England would have concurrent jurisdiction. The court emphasized that once the seat of arbitration is fixed in India, it would be in the nature of exclusive jurisdiction to exercise supervisory powers over the arbitration. The court cited the principle of comity and the need to avoid conflicting judgments from courts in different jurisdictions.Issue (vii): Entitlement to Anti-Suit Injunction:The court restored the anti-suit injunction granted by the Daman Trial Court, restraining the respondents from proceeding with any actions in the English courts. The court noted that the main contract, the IPLA, was to be performed in India, and the governing law of the contract was Indian law. The court emphasized that the considerations for designating a convenient venue for arbitration could not be understood as conferring concurrent jurisdiction on the English courts over the arbitration proceedings or disputes in general.Conclusion:The court dismissed Civil Appeal No. 2087 of 2014, affirming the findings that the parties can proceed to arbitration. The court set aside the findings of the Trial Court dismissing the application under Section 45 and affirmed the findings of the Appellate Court and the High Court allowing the application for reference of the dispute to arbitration. The court appointed Lord Hoffmann as the third arbitrator and stayed the pending suits and applications in Indian courts. The court allowed Civil Appeal No. 2086 of 2014, upholding the conclusion that the seat of arbitration is in India, overruling the conclusion that English courts would have concurrent jurisdiction, and restoring the anti-suit injunction. The parties were directed to proceed to arbitration.