TaxTMI 
TaxTMI 
1992 (5) TMI 177
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.... not governed by the Arbitration Act, 1940; the arbitration agreement on which the award was made was not governed by the law of India; the award fell within the ambit of the Foreign Awards (Recognition and Enforcement) Act, 1961 (Act 45 of 1961) (the 'Foreign Awards Act'); London being the seat of arbitration, English Courts alone had jurisdiction to set aside the award; and, the Delhi High Court had no jurisdiction to entertain the application filed under the Arbitration Act, 1940. The NTPC and the Singer entered into two formal agreements dated 17.8.1982 at New Delhi. The General Terms and Conditions of Contract dated 14.2.81 (the 'General Terms') are expressly incorporated in the agreements and they state : "the laws applicable to this Contract shall be the laws in force in India. The Court of Delhi shall have exclusive jurisdiction in all matters arising under this Contract." (7.2) The General Terms deal with the special responsibilities of foreign contractors and Indian contractors. The Singer being a foreign contractor, is governed by the provisions relating to the foreign contractors. The General Terms further provide for s....
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....urt (the 'ICC Rules'). In accordance with Article 12 of those Rules, the ICC Court chose London to be the place of arbitration. It is significant that the parties have expressly stated that the law which governs their contract, i.e., the proper law of the contract is the law in force in India and the courts of Delhi have exclusive jurisdiction in all matters arising under the contract. One of the clauses of the Contract deals with arbitration (clause 27 of the General Terms). The point for consideration is whether the High Court was right in rejecting the appellant's application filed under the provisions of the Arbitration Act, 1940 and in holding that the award which was made in London on an arbitration agreement was not governed by the law of India and that it was a foreign award within the meaning of the Foreign Awards Act and beyond the jurisdiction of the Indian Courts except for the purpose of recognition and enforcement under the latter Act. The award was made in London as an interim award in an arbitration between the NTPC and a foreign contractor on a contract governed by the law of India and made in India for its performance solely in India. The fundamental question i....
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....gh Court has rightly held that the impugned award falls under the Foreign Awards Act and it is not liable to be challenged on the alleged grounds falling under sections 14, 30 and 33 of the Arbitration Act, 1940. Counsel says that the award, having been made in London in terms of the ICC Rules to which the parties have submitted, is governed by the provisions of the New York Convention, as incorporated in the Foreign Awards Act, and its enforeability in India can be resisted only in the circumstances postulated under that Act, and the Delhi High Court has rightly rejected the petition invoking the jurisdiction of that court in terms of the Arbitration Act, 1940. Mr. Dholaka does not dispute that the substantive right of the parties under the Contract are governed by the law of India. His contention, however, is that while the main contract is governed by Indian law, as expressly stated by the parties, arbitration being a collateral contract and procedural in nature, it is not necessarily bound by the proper law of the contract, but the law applicable to it must be determined with reference to other factors. The place of arbitration is an important factor. London having been chose....
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....n of the parties must be expressed bona fide and it should not be opposed to public policy. In the words of Lord Wright :- ".....where there is an express statement by the parties of their intention to select the law of the contract, it is difficult to see Rule 180 is further elucidated by Dicey in the sub- rules. Sub-rule (1) reads :- Sub-rule (1) - When the intention of the parties to a contract,as to the law governing the contract, is expressed in words, this expressed intention, in general, determines the proper law of the contract." what qualifications are possible, provided the intention expressed is bona fide and legal, and provided there is no reason for avoiding the choice on the ground of public policy........" Vita Food Products Inc. v. Unus Shipping Co. Ltd., (1939) AC 277, 290 (PC). In the absence of an express statement about the governing law, the inferred intention of the parties determines that law. *The true intention of the parties in the absence of an express selection, ha to be discovered by applying " sound ideas of business, convenience and sense to the language of the contra....
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....arties in such circumstances by putting himself in the place of a "reasonable man". He has to determine the intention of the parties by asking himself "how a just and reasonable person would have regarded the problem", The Assunzion (1954) P. 150,176 (CA); Mount Albert Borough Council v. Australasian Temperance and General Mutual Life Assurance Society Ltd. (1938) A.C. 224, 240 (P.C.) For this purpose the place where the contract was made, the form and object of the contract, the place of performance, the place of residence or business of the parties, reference to the court having jurisdiction and such other links are examined by the courts to determine the system of law with which the transaction has its closest and most real connection. The position in these respects is summarised by the Privy Council in Mount Albert Borough Council v. Australasian Temperance and General Mutual Life Assurance Society, Limited, (1938) A.C. 224 at 240:- "The proper law of the contract means that law which the English or other Court is to apply in determining the obligations under the contract .....It may be that the parties have in terms in their agreement expressed what law they intend to govern,....
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....oper law of the contract. It is only in exceptional cases that it is not so even where the proper law of the contract is expressly chosen by the parties. Where, however, there is no express choice of the law govening the contract as a whole, or the arbitration agreement as such, a presumption may arise that the law of the country where the arbitration is agreed to be held is the proper law of the arbitration agreement. But that is only a rebuttable presumption. See Dicey, Vol I, p. 539; see the observation in Whitworth Street Estates (Manchester) Ltd. v. James Miller & Partners Ltd., 1970 AC 583, 607, 612 and 616) The validity, effect and interpretation of the arbitration agreement are governed by its proper law. Such law will decide whether the arbitration clause is wide enough to cover the dispute between the parties. Such law will also ordinarily decide whether the arbitration clause binds the parties even when one of them alleges that the contract is void, or voidable or illegal or that such contract has been discharged by breach or frustration. See Heyman & Anr. v. Darwins, Ltd 1942 (1) All E.R. 337. The proper law of arbitration will also decide whether the arbitration claus....
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....rn the conduct of the arbitration, except insofar as they conflict with the mandatory requirements of the proper law of arbitration, or of the procedural law of the seat of arbitration. See the observation of Kerr, LJ. in Bank Mellat v. Helliniki Techniki Sa., (1983) 3 All E.R. 428. See also Craig, Park and Paulsson, International Chamber of Commerce Arbitration, 2nd ed. (1990). To such an extent the appropriate courts of the seat of arbitration, which in the present case are the competent English courts, will have jurisdiction in respect of procedural matters concerning the conduct of arbitration. But the overriding principle is that the courts of the country whose substantive laws govern the arbitration agreement are the competent courts in respect of all matters arising under the arbitration agreement, and the jurisdiction exercised by the courts of the seat of arbitration is merely concurrent and not exclusive and strictly limited to matters of procedure. All other matters in respect of the arbitration agreement fall within the exclusive competence of the courts of the country whose laws govern the arbitration agreement. See Mustil & Boyd, Commercial Arbitration, 2nd ed.; Allen....
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....ublic policy. The arbitration agreement contained in the arbitration clause in a contract is often referred to as a collateral or ancillary contract in relation to the main contract of which it forms a part. The repudiation or breach of the main contract may not put an end to the arbitration clause which might still survive for measuring the claims arising out of the breach and for determining the mode of their settlement. See Heyman & Anr. v. Darwins, Ltd., (1942) 1 All E.R. 337; Bremer Vulkan Schiffbau Und Maschinenfabrik v. South India Shipping Corpn., (1981) 1 All E.R. 289. See also Mustil & Boyd, Commercial Arbitration, 2nd ed. (1989). The arbitration agreement may provide that all disputes which may arise between the parties will be referred to arbitration or it may provide that a particular dispute between the parties will be submitted to the jurisdiction of a particular arbitrator. The arbitration clause may identify the arbitrator or arbitrators and the place of arbitration or it may leave such matters to be determined by recourse to the machinery of an institutional arbitration, such as the ICC, or the London Court of International Arbitration or the American Arbitration....
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....onduct of arbitration is to a large extent avoided. The difference between an ad hoc arbitration and an institutional arbitration is not a difference between one system of law and another; for whichever is the proper law which governs either proceeding, it is merely a difference in the method of appointment and conduct of arbitration. Either method is applicable to an international arbitration, but neither is determinative of the character of the resultant award, namely, whether or not it is a foreign award as defined under the Foreign Awards Act, 1961. Where the ICC Rules apply, there is generally little need to invoke the procedural machinery of any legal system in the actual conduct of arbitration. These Rules provide for the submission of request for arbitration, the appointment of arbitrators, challenge against the appointment, pleadings, procedure, selection of the place of arbitration, terms of reference, time limit for award, cost, finality and enforceability, and similar matters of procedure (Article 11 of the ICC Rules). The parties are free under the ICC Rules to determine the law which the arbitrator shall apply to the merits of the dispute. In the absence of any stip....
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....nst whom it is sought to be enforced that the parties to the agreement were, under the law applicable to them, under some incapacity, or, the agreement was not valid under the law to which the parties have subjected it, or, in the absence of any indication thereon, under the law of the place of arbitration; or there was no due compliance with the rules of fair hearing; or the award exceeded the scope of the submission to arbitration; or the composition of the arbitral authority or its procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the place of arbitration; or 'the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, of under the law of which, that award was made'. The award will not be enforced by a court in India if it is satisfied that the subject matter of the award is not capable of settlement by arbitration under Indian law or the enforcement of the award is contrary to the public policy. The Foreign Awards Act contains a specific provision to exclude its operation to what may be regarded as 'domestic award' in t....
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....n, although in certain respects the law of the place of arbitration may have its relevance in regards to procedural matters. It is true that an arbitration agreement may be regarded as a collateral or ancillary contract in the sense that it survives to determine the claims of the parties and the mode of settlement of their disputes even after the breach or repudiation of the main contract. But it is not an independent contract, and it has no meaningful existence except in relation to the rights and liabilities of the parties under the main contract. It is a procedural machinery which is activated when disputes arise between parties regarding their rights and liabilities. The law governing such rights and liabilities is the proper law of the contract, and unless otherwise provided, such law governs the whole contract including the arbitration agreement, and particularly so when the latter is contained not in a separate agreement, but, as in the present case, in one of the clauses of the main contract. Significantly, London was chosen as the place of arbitration by reason of Article 12 of the ICC Rules which reads : "The place of ar....
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....y and other mandatory requirements of the legal system of that place. But in a proceeding such as the present which is intended to be controlled by a set of contractual rules which are self-sufficient and designed to cover every step of the proceeding, the need to have recourse to the municipal system of law and the courts of the place of arbitration is reduced to the minimum and the courts of that place are unlikely to interfere with the arbitral proceedings except in cases which shock the judicial conscience. See the observations of Kerr LJ in Bank Mellat v. Helliniki Techniki SA, (1983) 3 All E.R. 428. Courts would give effect to the choice of a procedural law other than the proper law of the contract only where the parties had agreed that matters of procedure should be governed by a different system of law. If the parties had agreed that the proper law of the contract should be the law in force in India, but had also provided for arbitration in a foreign country, the laws of India would undoubtedly govern the validity, interpretation and effect of all clauses including the arbitration clause in the contract as well as the scope of the arbitrators' jurisdiction. It is Indian law....