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2018 (11) TMI 366
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.... 2. By this appeal, the appellant challenges the Judgment and Order dated 15th September, 2017 (for short, the "impugned order") passed by the learned Single Judge (Hon'ble Mr. Justice K. R. Shriram) in an Arbitration Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short "the Act"). The Petition came to be filed before the learned Single Judge, challenging the award dated 11th September, 2015 by which the appellant's claim against the respondents was dismissed by the Arbitral Tribunal. The Arbitration Petition was dismissed by the learned Single Judge only on a preliminary objection raised by the respondents challenging the jurisdiction of this Court. To put it in a nutshell, the jurisdiction of the Court was challenged on the ground that the award being a foreign award and the juridical seat of arbitration being outside India as well as the law governing the arbitration agreement being Foreign Law, Part-I of the Act was impliedly excluded, and therefore, the award could not be challenged under Section 34 of the Act. Since, the preliminary objection was upheld by the learned Single Judge, there is no discussion to the challenge to the award on....
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....spondents circumvented the provisions of the BR Act, FEMA, the RBI Act, the Prevention of Money Laundering Act, 2002, (for short the "PML Act") and the Securities Exchange Board of India Act, 1992 (for short the "SEBI Act"). In light of these alleged violations by the respondents, the appellant was constrained to commence arbitration proceedings under the Escrow Agreement inter alia seeking to unwind the ex-facie illegal transaction. As mentioned earlier, the reliefs sought by the appellant were negated by the Arbitral Tribunal, who then went on to dismiss the claim made by the appellant and passed its final award dated 11th September, 2015. 5. It was the appellant's case that the Arbitral Tribunal failed to appreciate the respondents' conspiracy and design to defeat the provisions of Indian Law and other regulatory / statutory provisions which govern the Escrow Agreement. This being the case, the appellant approached this Court under Section 34 of the Act to set aside the award passed by the Arbitral Tribunal by filing the above Petition. The main ground on which the award was challenged was that it was in violation of the fundamental policy of Indian Law. 6. When this A....
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....jected to the laws of New York. He submitted that this becomes clear on a perusal of clause 16 of the Escrow Agreement which clearly stipulates that the Escrow Agreement shall be governed and construed in accordance with the Laws of India (save and except the clauses mentioned therein). He submitted that the arbitration agreement as set out in clause 15, is not a clause that falls within the exclusion as set out in clause 16. To put it simply, Mr Dada's argument was that clause 16 specifically provided which clauses of the Escrow Agreement were not to be governed by Indian Law and clause 15 (which is the arbitration agreement) was not one of them. Mr Dada submitted that clause 16 of the Escrow Agreement clearly indicates that there was an express inclusion of Part-I of the Arbitration and Conciliation Act, 1996. In this regard he submitted that clause 16, and which according to Mr Dada would include clause 15, clearly states that Escrow Agreement shall be governed in accordance with the Laws of India. Mr Dada was at pains to point out that clause 16 clarifies that only six clauses of the Agreement (namely, clauses 4.5, 12.3, 14.1.7, 14.1.8, 18.6 and 18.7) were excluded from the....
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....tember, 2012 (being the date on which the Judgment in BALCO was pronounced). According to Mr Dada, in the present matter, the Escrow Agreement which contains the arbitration clause between the parties was executed on 12th May, 2007. Therefore, in the facts of the present case, the law laid down in Bhatia would continue to apply, was the submission. 12. In the alternative, Mr Dada submitted that even assuming for the sake of argument that there is no express inclusion of Part-I of the Act and the principles as laid down in Sumitomo's case are not applicable, even in that event the tests as laid down by the Supreme Court in the case of Union of India Vs Reliance Industries & Ors. [(2015) 10 SCC 213] (for short "Reliance II") would be applicable to determine the express or implied inclusion. According to Mr Dada, the Supreme Court in Reliance II held that Part-I of the Act would apply to the International Commercial Arbitrations where:- (a) The Law governing the arbitration agreement is Indian Law; and (b) The juridical seat of arbitration is in India or in the facts of the case, the Court cannot arrive at a determination of the juridical seat. 13. The Supreme Court in the ca....
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....4) 5 SCC 1]. He submitted that in the facts of the present case, the following factors were relevant to show the closest and most real connection of the arbitration is with Indian Law and Indian Courts: (a) the entire transaction relates to the sale and purchase of equity shares in an Indian private sector bank, Tamilnad Mercantile Bank (for short "TMB"); (b) the Escrow account where the shares were deposited were maintained with Standard Chartered Bank in Mumbai, India; (c) the transaction arose as a result of and was structured in light of Indian laws, specifically the rules and regulations of the Reserve Bank of India ("RBI") under the Banking Regulation Act, 1949 and the Foreign Exchange Management Act, 1999; (d) One of the primary claims in the arbitration proceedings was that the respondents had colluded to circumvent Indian laws in order to acquire ownership and control over TMB, as was unequivocally demonstrated by their own internal correspondence. 15. All these factors clearly show that the closest and the most real connection of the arbitration was with Indian Law and Indian Courts, was the submission of Mr. Dada. Mr Dada submitted that the place of arbitration bein....
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....tration proceedings. This apart, it was also not in dispute that the award was made in New York and the Federal Arbitration Act contains provisions for challenging an award made in USA, was the submission. He submitted that by looking to all this, it was clear that considering that the arbitration was conducted in New York and was initiated and conducted under the Commercial Arbitration Rules of the American Arbitration Association, the applicability of Part-I of the Act was necessarily/impliedly excluded. 17. Mr Chinoy, then submitted that this was also the understanding of the contract by the appellant. He submitted that respondent Nos. 3 to 6 were not parties to the arbitration agreement contained in clause 15 of the Escrow Agreement. Despite this, the appellant purported to join respondent Nos.3 to 6 as parties to the arbitration proceedings. Respondent Nos.3 to 6, therefore, moved an application before the Arbitral Tribunal objecting to the Arbitral Tribunal's jurisdiction. In response to the said application, the appellant filed its response on 28th November, 2012 and in paragraphs 118 and 119 thereof specifically relied on the Federal Arbitration Act, USA and stated tha....
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....s Singer was in the context of Section 9(b) of the Foreign Awards Act, 1961 which stipulated that the award made in respect of the contract governed by Indian Law would not be considered as a Foreign Award. In this regard, Mr. Chinoy brought to our attention paragraph 13 of the judgement in the case of Reliance II. 19. As far as the seat of arbitration is concerned, Mr Chinoy submitted that in the present case, the arbitration clause provides that the place of arbitration shall be New York, New York. He submitted that Mr Dada's argument that the arbitration clause did not stipulate New York, New York as a seat of arbitration was completely answered by a decision of the Supreme Court in the case of Roger Shashoua & Ors. Vs Mukesh Sharma [(2017) 14 SCC 722] (for short "Roger Shashoua"). In fact in that case, the clause stipulated that the venue of the arbitration will be London U.K. and the governing law was to be Indian Law. In the case of Roger Shashoua the Supreme Court came to a finding that since there was an express designation of the arbitration venue and there was no designation of any alternative place of seat, and since the arbitration agreement provided that a suprana....
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....e, submitted that even in cases where the agreement may be governed by the principle laid down in Bhatia's case, once it is determined that the seat of arbitration was outside India, provisions of Part-I of the Act would be excluded and a challenge to an award rendered in such arbitration would not be capable of being entertained in Indian Courts. He submitted that on a plain reading of clauses 15 and 16 of the Escrow Agreement, it was clear that the seat of arbitration was outside India and hence Part-I of the Act was excluded by necessary implication. 22. Mr Dwarkadas then submitted that this was also clear from the fact that the appellant themselves had considered New York, New York to be the seat of arbitration as well as US Law being the law governing the arbitration agreement. He submitted that it is settled law that the conduct of the parties is a good guide to interpret an agreement and in this regard reliance was placed on a decision of the Supreme Court in the case of Godhra Electricity Co. Vs. The State of Gujarat [(1975) 1 SCC 199]. He submitted that the question with regard to the determination of the seat and the law governing the arbitration agreement was a matter o....
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....rties at length and have perused the papers and proceedings in the appeal including the impugned order passed by the learned Single Judge. The issue that we are called upon to decide are basically twofold. Firstly, we have to determine whether the juridical seat was outside India, and secondly, whether the law governing the arbitration agreement was Foreign Law or Indian Law. To understand this controversy, it would be apposite to set out clauses 15 and 16 of the Escrow Agreement as it is on the interpretation of these two clauses that the outcome of the appeal will be determined. Clauses 15 and 16 reads thus: "15. DISPUTE RESOLUTION. 15.1 Each of Corsair, Katra and the Escrow and Transaction Settlement Agent (the "Arbitrating Parties") agree to negotiate in good faith to resolve any dispute, difference or claim among the Arbitrating Parties arising out of or in connection, with this Agreement, including the construction, validity, execution, performance, termination or breach hereof. If negotiations do not resolve such dispute, difference or claim to the reasonable satisfaction of the Arbitrating Parties within 15 (fifteen) Business days of their initiation, then the Arbit....
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....e agreed between parties was in New York, New York and the appellant initiated the arbitration proceedings in New York. What is also important to note is that clause 15 provides that the judgment upon the Award rendered by the Arbitrator may be entered in any Court having jurisdiction thereof and shall be enforceable against the Arbitrating Parties in accordance with the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards as amended. 25. Thereafter, clause 16 deals with the Governing Law and states that this agreement shall be governed by and construed in accordance with the laws of India; provided further, that, in case of clauses 4.7, 12.3, 14.1.7, 14.1.8, 18.6 and 18.7 and the proviso thereof, New York Law shall apply notwithstanding any conflicts of law principles thereof, and each of Corsair, Arranger, BroadStreet and Gupta irrevocably and unconditionally agree to the application of New York Law and submission to New York jurisdiction with respect to such clauses. 26. Having said this, we shall now examine as to whether the arbitration agreement as contained in clause 15.1 was governed by the Laws of India or whether it was governed by Foreign Law. ....
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....rbitration. The arbitrator, the AAA and AAA employees are not competent to testify as witnesses in any such proceeding." 27. What can be seen from Rule 52(c) is that, the parties to an arbitration governed by these rules shall be deemed to have consented that judgment upon the arbitration award may be entered in any federal or state court having jurisdiction thereof. Another rule which to our mind would be important to take note of, would be Rule 46 which deals with form of award and reads thus: "R.46. Form of Award. (a) Any award shall be in writing and signed by a majority of the arbitrators. It shall be executed in the form and manner required by law. (b) The arbitrator need not render a reasoned award unless the parties request such an award in writing prior to appointment of the arbitrator or unless the arbitrator determines that a reasoned award is appropriate." 28. What Rule 46 stipulates is that the award shall be signed by the majority of the arbitrators. The arbitrator need not render a reasoned award unless the parties request such an award in writing prior to appointment of the arbitrator or unless the arbitrator determines that a reasoned award is appropriate. To ....
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.... 6, though not expressly being signatories to the amended Escrow Agreement, the Tribunal was nonetheless bound to arbitrate this dispute under the Federal Arbitration Act and the prevailing New York Law. Further, in its post-hearing brief dated 15th May, 2015, the appellant clearly stated that "the joinder of parties to arbitration is a procedural matter, to be considered under U.S. Law". From what we have stated, it is quite clear that the appellant itself understood clauses 15 & 16 in such a way that the arbitration agreement would be governed by U.S. Law. 30. We are unable to agree with Mr Dada that the appellant's reliance on the Federal Arbitration Act is irrelevant and immaterial for determination of the law applicable to the arbitration agreement. We find no merit in the argument of the appellant that the reliance placed by the respondents about the conduct of the appellant cannot confer jurisdiction and which according to Mr Dada, is a well settled proposition. As stated earlier, the appellant themselves had relied upon the Federal Arbitration Act to substantiate the joinder of respondent Nos.3 to 6 to the Arbitration Proceedings. Having done so, it was clear that the ....
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.... separate document providing that the parties agree to submit the dispute that arise between them under another agreement to arbitration, or in the main agreement itself the arbitration clause can be incorporated. In either situation, the arbitration agreement is an agreement by itself. This is well settled, but if one needs to refer to any authority on this subject it would be apposite to refer to the observations of the Supreme Court in the case of SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd. [(2011) 14 SCC 66]. Paragraphs 12 & 13 of this decision read thus:- "12. When a contract contains an arbitration agreement, it is a collateral term relating to the resolution of disputes, unrelated to the performance of the contract. It is as if two contracts-one in regard to the substantive terms of the main contract and the other relating to resolution of disputes-had been rolled into one, for purposes of convenience. An arbitration clause is therefore an agreement independent of the other terms of the contract or the instrument. Resultantly, even if the contract or its performance is terminated or comes to an end on account of repudiation, frustration or breach of contract, the....
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....r, that is not the case before us. 34. We find that the facts of the present case clearly fall within the ratio laid down by the Supreme Court in the case of Yograj Infrastructure Ltd. Vs. Ssang Yong Engineering & Construction Co. Ltd [2011(9) SCC 735] and thereafter as clarified in Yograj Infrastructure Ltd. Vs. Ssang Yong Engineering & Construction Co. Ltd. [2012(12) SCC 359]. In the case of Yograj, the Supreme Court also held that once the parties had specifically agreed that the arbitration proceedings would be continued in accordance with Foreign Law, the decision in Bhatia would no longer apply. In fact the decision in Yograj was followed by a Division Bench of this Court to which one of us was a party (B. P. Colabawalla J.), in the case of Harkirat Singh Vs. Rabobank International Holding [(2015) SCC OnLine Bom 605 : (2015) 5 Bom. C.R. 9]. We must also mention that the SLP filed from this Division Bench judgment in the case of Harkirat Singh was also dismissed by the Supreme Court on 12th May, 2016. 35. We also find that the present case is covered by another decision of the Supreme Court in the case of Reliance II. The Supreme Court in this case was considering a case of ....
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....the juridical seat of the arbitration. In this context, if one refers to clause 15, it clearly stipulates that the place of the arbitration shall be New York, New York or such other place as may be agreed upon by the Arbitrating Parties. Mr Dada submitted that what the agreement provides was only the venue of the arbitration and seat of arbitration was not fixed under clause 15. 38. We are unable to agree with this submission. On a plain reading of clause 15, it is clear that the place of arbitration referred to in clause 15 is the seat of arbitration. The parties expressly chose to have the place of arbitration in New York. This being the case, juridical seat of arbitration was New York. In fact, the appellant themselves invoked arbitration and submitted themselves to the jurisdiction of New York. This being the case, we do not think that Mr Dada is correct in his submission that the place of arbitration referred to in clause 15 was merely a venue and not a seat of arbitration. In this regard it would be apposite to refer to Section 2(2) [and which falls in Part - I of the Arbitration and Conciliation Act, 1996] which reads thus: "(2) This Part shall apply where the place of arb....
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.... the case and without anything more, we find that the reference to place of arbitration in clause 15.1 of the Escrow Agreement was clearly the seat of arbitration which was outside India. This being our conclusion, and when one reads this with the proviso to Section 2(2) of the Act, it becomes abundantly clear that a challenge to such an award could not have been brought before this Court under Section 34 of the Act which falls within Part - I. Once we come to this conclusion, then clearly, neither the seat of arbitration was in India and nor the law governing the arbitration agreement was Indian Law. If this is the case and as mentioned earlier, this is also how the parties understood it, then Part-I of the Arbitration and Conciliation Act, 1996, was impliedly excluded. Corollary to this is that the appellant could not have approached the Courts in India under Section 34 of the Act to challenge the award. 41. Whilst on this subject, we would also like to take note of the decision of the Supreme Court in the case of EITZEN Bulk A/S Vs. Ashapura Minechem Ltd. and Anr. [(2016) 11 SCC 508] (for short "EITZEN Bulk"). The Supreme Court in paragraph 34 of this decision has clearly held ....
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....a matter of choice any more than the notional motorist is free to choose which local traffic laws to obey and which to disregard." 35. In this view of the matter, the judgment of the Gujarat High Court holding that Ashapura's objections under Section 34 of the Arbitration Act are tenable before a court in India, that is, the court at Jamkhambhalia, Gujarat is contrary to law. The proceedings under Section 34, which occurs in Part I, are liable to be dismissed as untenable. The civil appeals of Eitzen are liable to succeed and are, therefore, allowed. The judgment of the Bombay High Court dated 3-12-2015 [Eitzen Bulk A/S v. Ashapura Minechem Ltd., 2015 SCC OnLine Bom 5909 : (2016) 1 Bom CR 466] enforcing the foreign award under Part II of the Arbitration Act is correct and liable to be upheld." 42. We must mention that even this Court in Harkirat Singh has relied upon the very same passage from Redfern and Hunter on International Arbitration that has been relied upon by the Supreme Court in the case of EITZEN Bulk. 43. Mr Dada, faced with all the aforesaid decisions of the Supreme Court submitted that all these decisions have been referred to a larger bench in the case of Uni....
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....which means the juridical seat. We have already noted that the terms 'place' and 'seat' are used interchangeably. When only the term 'place' is stated or mentioned and no other condition is postulated, it is equivalent to 'seat' and that finalises the facet of jurisdiction. But if a condition precedent is attached to the term 'place', the said condition has to be satisfied so that the place can become equivalent to seat. In the instant case, as there are two distinct and disjunct riders, either of them have to be satisfied to become a place. As is evident, there is no agreement. As far as determination is concerned, there has been no determination. In Ashok Leyland Limited and State of T.N.29, the Court has reproduced the definition of 'determination' from Law Lexicon, 2nd Edition by Aiyar, P. Ramanatha and Black's Law Dictionary, 6th Edition. The relevant paragraphs read thus:- "Determination or order.-The expression 'determination' signifies an effective expression of opinion which ends a controversy or a dispute by some authority to whom it is submitted under a valid law for disposal. The expression 'order' must have also a similar meaning, except that it need not operate t....
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....upreme Court has held that upon the conclusion of the arbitration (that is on the passing of the award) the Arbitral Tribunal becomes functus officio and the corresponding authority of the courts administering the curial law ceases. On aspects of enforcement and setting aside, they are entirely governed by the law governing the arbitration agreement only. Firstly, we must mention that in the case of Sumitomo the Supreme Court was interpreting the provisions of the Arbitration Act, 1940 and not the provisions of the Arbitration and Conciliation Act, 1996, which in fact, are quite different from the earlier Arbitration Act. Secondly, the decision in Sumitomo has been discussed in great detail by the larger bench of the Supreme Court in the case of Hardy Exploration and the Supreme Court (in paragraph 11 thereof) has clearly held that the principles laid down in Sumitomo were in no way applicable to the concept of determination of jurisdiction. This has been again reiterated in paragraph 27 wherein it is held that Sumitomo has no applicability to a controversy under the 1996 Act. We therefore find that no assistance can be derived by Mr. Dada from the decision of the Supreme Court in ....