TaxTMI 
TaxTMI 
2014 (5) TMI 1208
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....n rejected. 3. Before we discuss the legal issues, it would be pertinent to make a very brief note of the relevant facts. 4. The parties had entered into Two Production Sharing Contracts dated 22nd December, 1994 (as amended by Amendment Agreement No. 1 and Amendment Agreement No. 2) (hereinafter referred to as "PSC" or "PSCs") as and when appropriate. These two PSCs provide for the exploration and production of petroleum from the Mid and South Tapti Fields (hereinafter referred to as "Tapti" or "Tapri Field") and for the exploration and production of petroleum from Panna and Mukta Fields which shall be hereinafter referred to either as "Panna Mukta" or "Panna Mukta fields". The two PSCs shall be referred to "Tapti PSC" and "Panna Mukta PSC," respectively. 5. One of the PSCs was entered into with Reliance Industries Limited (RIL), the Appellant, a body corporate established under the laws of India. It is a major Indian multinational and the largest private sector company in India, with interests in activities including exploration and production of oil and gas, petroleum refining and marketing petrochemicals, textiles, retail and special economic zones. The other PSC was entered....
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....evant qualifications and experience appointed by agreement between the Parties. Any sole expert appointed shall be acting as an expert and not as an arbitrator and the decision of the sole expert on matters referred to him shall be final and binding on the Parties and not subject to arbitration. If the Parties are unable to agree on a sole expert, the disputed subject matter may be referred to arbitration. 33.3 Subject to the provisions herein, any unresolved dispute, difference or claim which cannot be settled amicably within a reasonable time may, except for those referred to in Article 33.2, be submitted to an arbitral tribunal for final decision as hereinafter provided. 33.4 The arbitral tribunal shall consist of three arbitrators. The Party or Parties instituting the arbitration shall appoint one arbitrator and the Party or Parties responding shall appoint another arbitrator and both Parties shall so advise the other Parties. The two arbitrators appointed by the Parties shall appoint the third arbitrator. 33.5 Any Party may, after appointing an arbitrator, request the other Party (ies) in writing to appoint the second arbitrator. If such other Party fails to appoint an arbi....
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....practicable, the Parties shall continue to implement the terms of this Contract notwithstanding the initiation of arbitral proceedings and any pending claim or dispute. 33.13 The fees and expenses of a sole expert or conciliator appointed by the Parties shall be borne equally by the Parties. Assessment of the costs of arbitration including incidental expenses and liability for the payment thereof shall be at the discretion of the arbitrators. 8. In accordance with Article 33.12, the arbitral proceedings were to be held in London as the neutral venue. At the time of entering into the PSCs, none of the parties were domiciled in U.K. In fact, subsequently, the venue of the arbitral proceedings was shifted to Paris and again re-shifted to London. Consequently on 24th February, 2004, the parties to the PSCs entered into an agreement amending the PSCs, whereby it was stated that: 4. Applicable Law and Arbitration: Except the change of venue/seat of Arbitration from London to Paris, the Articles 32 and 33 of the Contract shall be deemed to be set out in full in this Agreement mutatis mutandis and so that references therein to the Contract shall be references to this Agreement. 9. It ....
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....e or one of the parties requests that a decision be given by the whole tribunal. Various directions/orders/clarifications were made by the Chairman, with the concurrence of the other members of the tribunal. Pursuant to the above directions/orders/clarifications, the claimants/Appellants served upon the tribunal its statement of claim and amendment to the statement of claim dated 5th August, 2011 and claimants' revised amendment to the statement of claim dated 19th January, 2012. Similarly, the Respondent served upon the Tribunal its statement of defence dated 31st January, 2012 and additional statement on behalf of Respondent dated 10th April, 2012 pursuant to procedural order dated 13th March, 2012. The aforesaid procedural order dated 13th March, 2012 as amended by directions dated 15th May, 2012 set out the list of issues (the May 2012 issues) to be heard and be determined by the tribunal at the hearing fixed to commence on 21st May, 2012 and to conclude on 29th May, 2012 ("the May 2012 hearing"). The parties served upon each other witness statement of their witnesses. The documents relied upon by both the parties were also placed on record. 13. The Partial Final Award dat....
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....me amount as are claimed in paragraph 30.3(4) of the Statement of Claim. 15. The third set of relief claimed by the Appellant is set out in paragraph 30.3 of the Statement of Claim and is as follows: (1) a declaration that payment of royalties under the PSCs should be made by 15 February in respect of the period 1 July to 31 December and by 15 august in respect of the period 1 January to 30 June. (2) a declaration that, provided royalties are paid within the timeframes specified in (1) no interest is payable under the terms of the PSCs and any interest otherwise imposed is to be reimbursed by the Government. (3) a declaration that, in the event royalties are paid after the timeframes specified in (1), any interest in excess of LIBOR plus one percentage point is to be reimbursed by the Government. (4) a declaration that the Government is liable to reimburse the claimants pursuant to Article 15.6.1 of the PSCs in respect of any additional royalties or interest imposed which does not accord with the principles outlined at (1) to (3) above. (5) an award in favour of the claimants requiring the Government to reimburse the Claimants pursuant to Article 15.6.1 in the sum of Rs. 7,26....
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....s cannot contract out of such legislation and any agreement to that effect would be void and unenforceable by virtue of Section 23 of the Indian Contract Act, 1872; (c) the Claimants cannot avoid the effect of the legislation by relying on the doctrine of estoppel; (d) any dispute in respect of royalties should be referred to arbitration under Rule 33 of Petroleum and Natural Gas Rules 1959 ("the PNG Rules"); (e) there will likely be a defence to enforcement of any award in India Under Article V(2)(b) of the New York Convention as a matter of the public policy of India; (f) since any award has to be enforced in India, this Tribunal ought not to enter into or adjudicate questions/issues relating to royalties in view of Rule 33 of the PNG Rules and the decisions of the Indian Supreme Court in Nataraj Studios v. Navarang Studios (1981) 1 SCC 523, Amrit Banaspati Co. Ltd. v. State of Punjab (1992) 2 SCC 411 and Mafatlal Industries Ltd. v. Union of India (1997) 5 SCC 536; and (g) were the Tribunal to do so in reliance on Tamil Nadu Electricity Board v. ST-CMS Electric Co. Pvt. Ltd. (2007) 2 All ER (Comm) 701, it would be contrary to the law as laid down by the English Court of Appe....
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....which were made during the May 2012 Hearing. Subject to further order in the meantime, the merits of those issues will be decided in the March, 2013 Hearing. 23. Union of India challenged the aforesaid award before the High Court of Delhi in OMP No. 46 of 2013. The Respondents invoked the jurisdiction of the High Court Under Section 34 of the Arbitration Act for various reasons namely, (i) the terms of the PSCs entered would manifest an unmistakable intention of the parties to be governed by the laws of India and more particularly the Arbitration Act 1996; (ii) the contracts were signed and executed in India; (iii) the subject matter of the contracts, namely, the Panna Mukta and the Tapti Fields are situated within India; (iv) the obligations under the contracts have been for the past more than 15 years performed within India; (v) the contracts stipulate that they "shall be governed and interpreted in accordance with the laws of India"; (vi) they also provided that "nothing in this contract" shall entitle either of the parties to exercise the rights, privileges and powers conferred upon them by the contract "in a manner which will contravene the laws of India" (Article 32.2); and ....
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....aw would be applicable only with regard to the curial law matters i.e. conduct of the arbitral proceedings. For all other matters, proper law of the contract would be applicable. Relying on Article 15(1), it has been held that the fiscal laws of India cannot be derogated from. Therefore, the exclusion of Indian public policy was not envisaged by the parties at the time when they entered into the contract. The High Court further held that to hold that the agreement contained in Article 33 would envisage the matters other than procedure of arbitration proceedings would be to re-write the contract. The High Court also held that the question of arbitrability of the claim or dispute cannot be examined solely on the touchstone of the applicability of the law relating to arbitration of any country but applying the public policy under the laws of the country to which the parties have subjected the contract to be governed. Therefore, according to the High Court, the question of arbitrability of the dispute is not a pure question of applicable law of arbitration or lex arbitri but a larger one governing the public policy. The High Court then concluded that public policy of India cannot be a....
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....ters of public money in India, the jurisdiction of the Indian courts cannot be excluded. The High Court concludes that there is no reason why the public money be allowed to invested for seeking adjudication of the claims which may be eventually found to be impermissible to be enforced. Finally, the High Court declined to consider the law laid down by the Constitution Bench of this Court in Bharat Aluminium on the basis that the operation of the judgment has been made prospective by the court. The final conclusion has been given in paragraph 59 which is as under: 59. No submission on the part of the Respondents remains unaddressed. I have already observed that upon testing the instant case on the principles of law laid down in the case of Bhatia International (supra) as well as Venture Global (supra), no inference as to express or implied exclusion of the Part I of the Arbitration and Conciliation Act, 1996 can be drawn. Resultantly, the objection raised by the Respondents relating to lack of jurisdiction of Indian court on the count of express choice of laws provisions cannot be sustained as Indian laws including provisions of Part I of the Act are not expressly nor impliedly excl....
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....e arbitration clause therein was the same but the question of public policy had not been addressed by the Court. Relying on State of Gujarat and Anr. v. Justice R.A. Mehta (Retired) and Ors. (2013) 3 SCC 1, Dr. Singhvi submitted that even if the issue of public policy was not particularly raised or addressed, the judgment in Videocon Industries Limited (supra) still be a binding precedent. According to him, whilst concluding that the parties did not intend to exclude the applicability of the Arbitration Act, 1996 to the arbitration agreement, the High Court has erroneously held that it was necessary for the parties to exclude not only the provisions of the Arbitration Act but also specifically plead that public policy is also excluded. According to the learned senior counsel, Article 15.6.1 has no relevance for the determination of the question as to whether the Arbitration Act, 1996 will apply to the arbitration, which is being held in London. 30. Mr. A.K. Ganguly, learned senior counsel appearing for Union of India submits that the decision in this case has been correctly rendered by the High Court based on the law laid down by this Court in Bhatia International and Venture Glob....
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.... challenge to the conclusions recorded by the CAG Audit and such a challenge would not be arbitrable. It is further submitted by him that the issues raised with regard to royalty is also not arbitrable as it is not a commercial issue. He has distinguished the judgment of this Court in Videocon Industries Limited (supra) on the basis that the issue with regard to the public law was not considered by the Court in that judgment. 32. As noticed earlier, both the learned senior counsel have also submitted written submissions. Primarily, the submissions made in the Court have been reiterated and, therefore, reference will be made to the same as and when necessary. 33. We have considered the submissions made by the learned Counsel for the parties. 34. Before we analyze the submissions made by the learned senior counsel for both the parties, it would be appropriate to notice the various factual and legal points on which the parties are agreed. The controversy herein would have to be decided on the basis of the law declared by this Court in Bhatia International (supra). The parties are agreed and it is also evident from the Final Partial Consent Award dated 14th September, 2011 that the ....
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.... of the contract as is evident from the heading of the Article which is "Applicable Law and Language of the Contract". Article 32.1 provides the proper law of the contract i.e. laws of India. Article 32.2 makes a declaration that none of the provisions contained in the contract would entitle either the Government or the Contractor to exercise the rights, privileges and powers conferred upon it by the contract in a manner which would contravene the laws of India. 38. Article 33 makes very detailed provision with regard to the resolution of disputes through arbitration. The two Articles do not overlap-one (Article 32) deals with the proper law of the contract, the other (Article 33) deals with ADR, i.e. consultations between the parties; conciliation; reference to a sole expert and ultimately arbitration. Under Article 33, at first efforts should be made by the parties to settle the disputes among themselves (33.1). If these efforts fail, the parties by agreement shall refer the dispute to a sole expert (33.2). The provision with regard to constitution of the arbitral tribunal provides that the arbitral tribunal shall consist of three arbitrators (33.4). This article also provides t....
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.... can it be said as canvassed by the Respondents, that applicability of Arbitration Act, 1996 has not been excluded? 41. It was submitted by Mr. Ganguly that the intention of the parties was never to exclude the applicability of Arbitration Act, 1996. It is submitted that the expression "laws of India" Under Article 32.2 would also include the Arbitration Act, 1996. This submission is without any merit. In our opinion, the expression "laws of India" as used in Article 32.1 and 32.2 have a reference only to the contractual obligations to be performed by the parties under the substantive contract i.e. PSC. In other words, the provisions contained in 33.12 are not governed by the provisions contained in Article 32.1. It must be emphasized that Article 32.1 has been made subject to the provision of Article 33.12. Article 33.12 specifically provides that the arbitration agreement shall be governed by the laws of England. The two Articles are particular in laying down that the contractual obligations with regard to the exploration of oil and gas under the PSC shall be governed and interpreted in accordance with the laws of India. In contra-distinction, Article 33.12 specifically provide....
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....ned by the laws of England, it was no longer open to them to contend that the provisions of Part I of the Arbitration Act would also be applicable to the arbitration agreement. This Court in the case of Videocon Industries Ltd. (supra) has clearly held as follows: 33. In the present case also, the parties had agreed that notwithstanding Article 33.1, the arbitration agreement contained in Article 34 shall be governed by laws of England. This necessarily implies that the parties had agreed to exclude the provisions of Part I of the Act. As a corollary to the above conclusion, we hold that the Delhi High Court did not have the jurisdiction to entertain the petition filed by the Respondents Under Section 9 of the Act and the mere fact that the Appellant had earlier filed similar petitions was not sufficient to clothe that High Court with the jurisdiction to entertain the petition filed by the Respondents. 44. In coming to the aforesaid conclusion this Court interpreted similar if not identical provisions contained in the arbitration agreement. The provision with regard to proper law of the contract and the arbitration agreement was as follows: 3. For the sake of convenience, the re....
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....eat of arbitration cannot be changed by mere agreement of parties. In Paragraph 21 of the judgment, it was observed as follows: 21. Though, it may appear repetitive, we deem it necessary to mention that as per the terms of agreement, the seat of arbitration was Kuala Lumpur. If the parties wanted to amend Article 34.12, they could have done so only by a written instrument which was required to be signed by all of them. Admittedly, neither was there any agreement between the parties to the PSC to shift the juridical seat of arbitration from Kuala Lumpur to London nor was any written instrument signed by them for amending Article 34.12. Therefore, the mere fact that the parties to the particular arbitration had agreed for shifting of the seat of arbitration to London cannot be interpreted as anything except physical change of the venue of arbitration from Kuala Lumpur to London. 46. The other issue considered by this Court in Videocon Industries Limited (supra) was as to whether a petition Under Section 9 of the Arbitration Act, 1996 would be maintainable in Delhi High Court, the parties having specifically agreed that the arbitration agreement would be governed by the English Law.....
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.... 2007 (1) All E.R. (Comm) 591 considering a similar situation, it has been held as follows: ...an agreement as to the seat of an arbitration is analogous to an exclusive jurisdiction clause. Any claim for a remedy...as to the validity of an existing interim or final award is agreed to be made only in the courts of the place designated as the seat of arbitration. (Emphasis supplied) 50. This Court in Dozco India Ltd. (supra) again reiterated the principle of law laid down in Sumitomo Heavy Industries Ltd. (supra), wherein the law was very clearly enunciated in Para 16: The law which would apply to the filing of the award, to its enforcement and to its setting aside would be the law governing the agreement to arbitrate and the performance of that agreement. This judgment is rendered by a three-Judge Bench. 51. It is noteworthy that the judgment in Sumitomo was not dissented from in Bhatia International on which the judgment in Venture Global is based. This again persuades us to follow the law laid down in Videocon (supra). 52. Again this Court in Yograj Infrastructure (two-Judge Bench) considered a similar arbitration agreement. It was provided that the arbitration proceedings....
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.... but it could scarcely be supposed that a party aggrieved by one part of an award could proceed in one jurisdiction and a party aggrieved by another part of an award could proceed in another jurisdiction. Similarly, in the case of a single complaint about an award, it could not be supposed that the aggrieved party could complain in one jurisdiction and the satisfied party be entitled to ask the other jurisdiction to declare its satisfaction with the award. There would be a serious risk of parties rushing to get the first judgment or of conflicting decisions which the parties cannot have contemplated. 55. The aforesaid observations were subsequently followed by the High Court of Justice Queen's Bench Division, Commercial Court (England) in Sulamerica CIA Nacional De Seguros SA v. Enesa Engenharia SA-Enesa (2012) WL 14764. In laying down the same proposition, the High Court noticed that the issue in this case depends upon the weight to be given to the provision in Condition 12 of the insurance policy that "the seat of the arbitration shall be London, England." It was observed that this necessarily carried with it the English Court's supervisory jurisdiction over the arbitrat....
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....tax and the CAG audit report are not arbitrable. In support of this submission, he relies on the provisions contained in Article 15.1 read with Article 32.2. Relying upon these two Articles, Mr. Ganguly submitted that the obligation with regard to taxes, royalties, rentals etc. are not purely contractual, they are governed by the relevant statutory provisions. He, therefore, placed strong reliance on the judgment in Venture Global (supra) in support of his submission that since the disputes are not arbitrable, the award cannot be enforced under Part II of the Arbitration Act, 1996 but is amenable to challenge Under Section 34 of the Act. It would be appropriate to point out that the judgment in Venture Global is in two parts. The first part is based on Bhatia International Ltd., wherein it is held as follows: 32. ..In cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case the laws or rules chosen by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or rules will not apply. 58. In this cas....
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....the laws of India and, therefore, violate public policy. In our opinion, such circumstances do not exist in the present case as there is no danger of violation of any statutory provisions. Prima facie, it appears that there is no challenge to the Gazette Notification. In fact, claim statement shows that the amounts of royalties/cess levied have been paid. Prayer is for reimbursement of the amounts paid, based on Articles 15.6 and 15.7 of the PSC. There also seems to be a claim for making necessary revisions and adjustment to the contract to off-set the effect of any changes in the law. We fail to see any apparent or so patently obvious violation of Indian Laws in any of these claims. The basis for filing the petition Under Section 34 is that the Appellants are bound to obey the Laws of the country. The Appellants have nowhere claimed to be exempted from the Laws of India. They claim that the Government of India, party to the Contract, i.e., PSC has failed to seek and obtain exemption as stipulated in the contract. Whether or not the claim has substance is surely an arbitral matter. It is not the case of the Appellants that they are not bound by the Laws of India, relating to the pe....
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....udhiana Improvement Trust and Anr. 2013 (7) SCALE 327, Enercon (India) Ltd. and Ors. v. Enercon GMBH and Anr. 2014 (1) Arb. LR 257 (SC), World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) PTC Ltd. [Civil Appeal No. 895 of 2014] 62. This principle of separability permits the parties to agree: that law of one country would govern to the substantive contract and laws of another country would apply to the arbitration agreement. The parties can also agree that even the conduct of the reference would be governed by the law of another country. This would be rare, as it would lead to extremely complex problems. It is expected that reasonable businessman do not intend absurd results. In the present case, the parties had by agreement provided that the substantive contract (PSC) will be governed by the laws of India. In contradistinction, it was provided that the arbitration agreement will be governed by laws of England. Therefore, there was no scope for any confusion of the law governing the PSC with the law governing the arbitration agreement. This principle of severability is also accepted specifically Under Article 33.10 of the PSC, which is as under: The right to arbitrate....
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.... meaning confined to only curial law. It is permissible under law for the parties to provide for different laws of the contract and the arbitration agreement and the curial law. In Naviera Amazonica SA (supra), the Court of Appeal in England considered an agreement which contained a clause providing for the jurisdiction of the courts in Lima, Peru in the event of judicial dispute and at the same time contained a clause providing that the arbitration would be governed by the English Law and the procedural law of arbitration shall be the English Law. The Court of Appeal observed as follows: All contracts which provide for arbitration and contain a foreign element may involve three potentially relevant systems of law: (1) the law governing the substantive contract; (2) the law governing the agreement to arbitrate and the performance of that agreement; (3) the law governing the conduct of the arbitration. In the majority of cases all three will be the same. But (1) will often be different from (2) and (3). And occasionally, but rarely (2) may also differ from (3). 67. From the above, it is evident that it was open to the parties to agree that the law governing the substantive contrac....
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....sisting of what is generally referred to as the `curial law' of the arbitration, concerns the manner in which the parties and the arbitrator are required to conduct the reference of a particular dispute. According to the English theory of arbitration, these rules are to be ascertained by reference to the express or implied terms of the agreement to arbitrate. This being so, it will be found in the great majority of cases that the curial law, i.e., the law governing the conduct of the reference, is the same as the law governing the obligation to arbitrate. It is, however, open to the parties to submit, expressly or by implication, the conduct of the reference to a different law from the one governing the underlying arbitration agreement. In such a case, the court looks first at the arbitration agreement to see whether the dispute is one which should be arbitrated, and which has validly been made the subject of the reference, it then looks to the curial law to see how that reference should be conducted and then returns to the first law in order to give effect to the resulting award. *** It may therefore be seen that problems arising out of an arbitration may, at least in theory....
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....ea. It is for this reason that the Respondent heavily relied on the law laid down in Sumitomo Heavy Industries Ltd. v. ONGC Ltd. (2009) 3 ALR 162. This judgment is a complete authority on the proposition that the arbitrability of the dispute is to be determined in terms of the law governing arbitration agreement and the arbitration proceedings have to be conducted in accordance with the curial law. This Court, in that judgment, relying on Mustill and Boyd: The Law and Practice of Commercial Arbitration in England, 2nd Edn., observed in para 15 that where the law governing the conduct of the reference is different from the law governing the underlying arbitration agreement, the court looks to the arbitration agreement to see if the dispute is arbitrable, then to the curial law to see how the reference should be conducted, "and then returns to the first law in order to give effect to the resulting award". In para 16, this Court, in no uncertain terms, declared that the law which would apply to the filing of the award, to its enforcement and to its setting aside would be the law governing the agreement to arbitrate and the performance of that agreement. 70. We are in respectful agree....