Foreign arbitration stay remains available absent a valid step in suit, and an additional court-remedy clause does not defeat arbitration

A lender is not disentitled from seeking a stay under Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 unless it has validly appeared and taken a binding step in the suit; unauthorised filing of time applications contrary to limited instructions did not amount to such a step. The arbitration clause remained effective despite a separate contractual reservation of an additional right to sue in specified courts, because that reservation did not nullify or render the arbitration agreement inoperative. Separate contracts with different parties and the possibility of different arbitrators did not make performance impossible, so the suit was stayed in favour of foreign arbitration.

---

---

Issues: (i) Whether the lenders were disentitled to seek stay of the suit under Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 on the ground that they had taken steps in the suit before applying for stay; (ii) Whether the arbitration clauses in the lenders' and suppliers' contracts were null, inoperative or incapable of being performed so as to defeat stay of the suit.

Issue (i): Whether the lenders were disentitled to seek stay of the suit under Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 on the ground that they had taken steps in the suit before applying for stay.

Analysis: The right to seek stay under Section 3 required appearance in the suit and, before filing a written statement or taking any other step, an application for stay. The material on record showed that the lender's vakalatnama was confined to the interlocutory injunction proceeding and was expressly restricted by instructions not to take any step in the suit or submit to Indian court jurisdiction. The applications for time to file written statement were unauthorised and contrary to those express instructions. As the lender had not validly appeared in the suit and had not taken a binding step in the proceedings, the statutory bar did not apply.

Conclusion: The lenders were not disentitled from seeking stay on the ground of taking steps in the proceedings; the requirement under Section 3 was satisfied in their favour.

Issue (ii): Whether the arbitration clauses in the lenders' and suppliers' contracts were null, inoperative or incapable of being performed so as to defeat stay of the suit.

Analysis: The arbitration clause in the lenders' agreements provided for final settlement by ICC arbitration at Stockholm, and clause 18.03 reserving an additional right to sue in specified courts did not destroy the arbitration agreement or make it inoperative. It only preserved an additional remedy and did not negate the binding character of the arbitration clause. The fact that the borrowers had entered into separate contracts with different parties and that different arbitrators might be involved did not render the agreements incapable of performance. The Court held that the plaintiff could not, by filing a suit, nullify the contractual obligation to arbitrate, and the agreements remained valid and operative.

Conclusion: The arbitration agreements were valid, operative and capable of being performed, and the suit was liable to be stayed.

Final Conclusion: The stay petitions succeeded, the impugned orders were set aside, and the civil suit was directed to remain stayed in accordance with the foreign arbitration agreement.

Ratio Decidendi: A party seeking stay under Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 is not disqualified unless it has validly appeared and taken a step in the suit, and an arbitration clause is not rendered inoperative merely because the contract also reserves an additional right to sue in specified courts.

---