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                                                                   REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  5765     OF 2014 (Arising out of S.L.P. (C) No. 20041 of 2013)

Reliance Industries Limited & Anr.          …Appellant  

VERSUS

Union of India                                         ...Respondent

J U D G M E N T

SURINDER SINGH NIJJAR, J.

1. Leave granted.

2. This  appeal  is  directed  against  the  judgment  of  the  High  

Court of Delhi at New Delhi rendered in OMP No.46 of 2013  

dated  22nd March,  2013.  By  the  aforesaid  judgment,  the  

Delhi  High  Court  has  allowed  the  petition  filed  by  the  

respondent  under  Section  34  of  the  Arbitration  and  

Conciliation  Act,  1996  (hereinafter  referred  to  as  ‘the  

Arbitration Act,  1996’),  challenging the Final  Partial  Award  

dated 12th September,  2012.  By the aforesaid  Award,  the  

objection  raised  by  the  Union  of  India  relating  to  the

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arbitrability of the claims made by the petitioner in respect of  

Royalties,  Cess,  Service  Tax  and  CAG  Audit  have  been  

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

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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  into  with  BG  Exploration  and  Production  India  

Limited (“BG”), a body corporate established under the laws  

of the Cayman Islands. It is a company forming part of BG  

Group, an international energy group headquartered in the  

United  Kingdom  with  business  operations  in  numerous  

countries. In 2002, BG Group acquired the share capital of  

Enron  Oil  and  Gas  India  Limited  (EOGIL,  a  company  

formerly  part  of  the Enron group of  companies).  Upon its  

acquisition on 15th February, 2003, the name of EOGIL was  

changed to BG Exploration and Production India Limited.

6. ONGC is  a  state-owned  oil  and  gas  company in  India  in  

which the Government of India holds a 74.14 % equity stake.  

It  produces various petroleum products including crude oil,  

natural gas and LPG. These three companies are together

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defined as the “Contractor” (in the PSCs Clause 1.23).  

7. The two PSCs provide a detailed procedure for Alternative  

Dispute Redressal  Mechanisms.  Articles 32 and 33 of  the  

PSCs are relevant for this purpose. These Articles provide  

as under :  

“Article 32 –  Applicable Law and Language of  the Contract –

32.1 Subject to the provisions of Article 33.12, this  Contract  shall  be  governed  and  interpreted  in  accordance with the laws of India.  

32.2  Nothing  in  this  Contract  shall  entitle  the  Government or the Contractor to exercise the rights,  privileges  and  powers  conferred  upon  it  by  this  Contract in a manner which will contravene the laws  of India.  

32.3 The English language shall be the language of  this  Contract  and  shall  be  used  in  arbitral  proceedings. All communication, hearings or visual  materials  or  documents  relating  to  this  Contract  shall be in English.    

Article  33  –  Sole  Expert,  Conciliation  and  Arbitration :

33.1 The Parties shall use their best efforts to settle  amicably all disputes, differences or claims arising  out of or in connection with any of the terms and  conditions  of  this  Contract  or  concerning  the  interpretation or performance thereof.

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33.2 Except for matters which, by the terms of this  Contract, the Parties have agreed to refer to a sole  expert and any other matters which the Parties may  agree to so refer, any dispute, difference or claim  arising between the Parties hereunder which cannot  be settled amicably may be submitted by any Party  to  arbitration  pursuant  to  Article  33.3.  Such  sole  expert shall be an independent and impartial person  of international standing with relevant 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 arbitrator within forty-five (45) days of receipt of  the written request to do so, such arbitrator may, at  the request of the first Party,  be appointed by the  Secretary  General  of  the  Permanent  Court  of  Arbitration at the Hague, within forty-five (45) days

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of the date of receipt of such request, from amongst  persons who are not nationals of the country of any  of the Parties to the arbitration proceedings.  

33.6 If the two arbitrators appointed by the Parties  fail  to  agree  on  the  appointment  of  the  third  arbitrator within thirty (30) days of the appointment  of  the second arbitrator  and if  the Parties do not  otherwise  agree,  the  Secretary  General  of  the  Permanent Court of Arbitration at the Hague may, at  the request of either Party and in consultation with  both, appoint the third arbitrator who shall not be a  national of the country of any Party.  

33.7 If any of the arbitrators fails or is unable to act,  his successor shall be appointed in the manner set  out in this Article as if he was the first appointment.  

33.8 The decision of the arbitration tribunal and, in  the  case  of  difference  among  the  arbitrators,  the  decision of the majority,  shall be final and binding  upon the Parties.  33.9 Arbitration proceedings shall be conducted in  accordance with the arbitration rules of the United  Nations  Commission  on  International  Trade  Law  (UNCITRAL) of 1985 except that in the event of any  conflict  between these rules and the provisions of  this Article 33, the provisions of this Article 33 shall  govern.

33.10  The  right  to  arbitrate  disputes  and  claims  under this Contract shall survive the termination of  this Contract.   

33.11 Prior to submitting a dispute to arbitration, a  Party may submit the matter for conciliation under  the  UNCITRAL  conciliation  rules  by  mutual  agreement of the Parties. If the Parties fail to agree  on a conciliator (or conciliators) in accordance with  the  rules,  the  matter  may  be  submitted  for  arbitration.  No  arbitration  proceedings  shall  be

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instituted while conciliation proceedings are pending  and  such  proceedings  shall  be  concluded  within  sixty (60) days.  

33.12  The  venue  of  conciliation  or  arbitration  proceedings  pursuant  to  this  Article,  unless  the  Parties otherwise agree, shall be London, England  and shall  be  conducted in  the English  Language.  The arbitration agreement contained in this Article  33  shall  be  governed  by  the  laws  of  England.  Insofar as 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 :

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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 appears that certain disputes and differences have arisen  

between the parties, under or in connection with the PSCs.  

Consequently,  the  appellant  issued  a  notice  of  arbitration  

dated 16th December, 2010. The disputes, differences and  

claims  are  common to  both  the  Tapti  PSC and Panna &  

Mukta PSC. The appellant claims that all attempts to resolve  

the  disputes  with  the  respondent  amicably  through  

correspondences and meetings have failed.  The disputes,  

differences and claims arising out of or in connection with  

the  PSCs  have  been  summarized  in  paragraph  6  of  the  

notice of arbitration.      

10.Pursuant  to  the  aforesaid  notice,  the arbitral  tribunal  was  

duly constituted on 29th July, 2011. Under Article 33.12, the  

venue of arbitration is in London. The parties confirmed the  

term of  appointment  of  the  Arbitral  Tribunal  on  29th July,  

2011,  signed  by  the  Chairman  on  15th August,  2011.  A

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substantive hearing was held between 21st May, 2012 to 29th  

May,  2012  in  Singapore.  Thereafter,  on  the  basis  of  the  

amendment  made  in  the  PSC  as  noticed  above,  by  

agreement of the parties, the arbitral tribunal made the “Final  

Partial  Consent  Award”  on  14th September,  2011.  In  the  

aforesaid award, it is recorded as under :

“3. Final Partial Award as to Seat  

3.1  Upon  the  agreement  of  the  Parties,  each  represented by duly authorized representatives and  through counsel,  the Tribunal hereby finds, orders  and awards:

a) That without prejudice to the right of the Parties  to  subsequently  agree  otherwise  in  writing,  the  juridical  seat  (or  legal  place)  of  arbitration for  the  purposes  of  the  arbitration  initiated  under  the  Claimants’  Notice  of  Arbitration  dated  16th  December, 2010 shall be London, England.

b)  That  any  hearings  in  this  arbitration  may take  place  in  Paris,  France,  Singapore  or  any  other  location the Tribunal considers may be convenient.

c)  That,  save  as  set  out  above,  the  terms  and  conditions of the arbitration agreements in Article 33  of the PSCs shall remain in full force and effect and  be applicable in this arbitration.”

11. This Consent Award was duly signed by                      Mr.   

Christopher Lau SC (Chairman), Mr. Peter Leaver QC (Co-

arbitrator)  and  Mr.  Justice  B.P.  Jeevan  Reddy

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(Co-arbitrator).  

12.Pursuant  to  Clause  28  of  the  terms  of  appointment,  the  

Chairman  of  the  Tribunal  is  empowered  to  make  

interlocutory  orders  and  consult  other  members  of  the  

tribunal  if  he  considers  appropriate  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

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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  dated  12th September,  2012  

records the claimant’s claims for relief as set out in Section E  

of  the  Statement  of  the  Scheme.   Paragraph  30.3  of  the  

Statement of Claim reads as follows:-

“(1)  a declaration that,  for  the purposes of  Article  

15.6.1, the value of Gas at the wellhead should be  

calculated by deducting from the sales price at the  

Delivery Point an amount reflecting all of the costs  

which are incurred between the wellhead and the  

Delivery point regardless of whether such costs are  

classified  as  capital  expenditure  or  operating  

expenditure and regardless of whether such costs  

are recoverable out of Cost Petroleum under Article  

13 of the PSCs.  

(2) a declaration that,  with effect from the date of  

any partial or final award to the termination of the  

PSCs, and pursuant to Article 15.6.1 of the PSCs,

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the  Government  is  required  to  reimburse  any  

excess royalties paid as a result of the exclusion of  

post-wellhead  capital  expenditure  from  wellhead  

value  calculations  made  pursuant  to  the  Gazette  

Notification or pay damages in the same amount for  

failure to procure an exemption in respect of such  

excess royalties.      

(3)  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  

imposed and paid by the Claimants since August  

2007 as a result of the exclusion of post-wellhead  

capital expenditure from wellhead value calculations  

made pursuant to the Gazette Notification.

(4) on award in favour of the Claimants requiring the  

Government to reimburse the Claimants pursuant to  

Article  15.6.1  in  the  sum of  US  $  11,413,172  in  

respect of the additional royalties imposed and paid  

under  protest  between  August  2007  and  March  

2011  or  pay  damages  in  the  same  amount  for  

failure to procure on exemption in respect of such  

additional royalties.”

14.In the alternative, the appellants claimed the reimbursement  

pursuant to Article 15.7 and 15.8 of the relevant PSCs (as

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the case may be), the relief prayed for was as under :

“a) directing the parties to consult in order to make  

the  necessary  revisions  and  adjustments  to  the  

PSCs so as to maintain the expected benefit to the  

Claimants  as  from  August  2007  by  requiring  the  

respondent  to  reimburse  any  excess  royalties  

payable  following  the  issuance  of  the  Gazette  

Notification;

b) consequential declaratory relief; and

c) an award in damages in the same 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

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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.7,26,00,532  in  

respect  of  the  additional  royalties  imposed  in  

relation to royalty payments made between 1995 to  

2002.”   

16.As noticed earlier, the aforesaid reliefs were claimed by the  

appellant under Article 15.6.1, which is as under:-

“15.6.1 – The constituents of the (claimants) shall  

be  liable  to  pay  royalties  and  cess  on  their  

participating interest share of Crude Oil and Natural  

Gas  saved  and  said  in  accordance  with  the

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provisions  of  this  Agreement.   The  royalty  on  oil  

saved and sold will be paid  at RS. 481 per metric  

ton and cessan oil  saved and said will  be paid at  

Rs.900 per metric ton. Royalty on Gas saved and  

said will be paid at ten per cent (10%) of the value  

at wellhead. No cess shall be payable in response  

of  Gas.  Royalty  and  cess  shall  not  exceed  the  

herein above amounts throughout  the term of  the  

contract.  Royalty  and  cess  shall  be  payable  in  

Indian Rupees. Any such additional payment shall  

be made by the (respondent)”

17.Further the relief is claimed under Article 15.8 of the Tapti  

PSC which is in identical terms of Article 15.7 in the Panna  

Mukta PSC, which is as under :

“15.8 – If any change in or to any Indian law, rule or  

regulation  by  any  authority  results  in  a  material  

change to the economic benefits accruing to any of  

the parties to this contract after the effective date,  

the  parties  shall  consult  promptly  to  make  

necessary revisions and adjustments to the contract  

in order to maintain such expected benefits to each  

of the parties.”

18.The four preliminary objections raised by the Union of India  

before the Arbitral Tribunal are as follows :-

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(1) The  Claimants’  claims  in  regard  to  royalties  

(paragraph 14.1 of the Statement of Defence) are  

not arbitrable;

(2) The Claimants’ claims in respect of cess (paragraph  

14.2 of the Statement of Defence) are not arbitrable;

(3) The  Claimants’  claims  in  respect  of  service  tax  

(paragraph 14.3 of  the State  of  Defence)  are  not  

arbitrable; and

(4) The Claimants’ claims in respect of the Comptroller  

and  Auditor  General’s  (“CAG”)  audit  (paragraph  

20.10  of  the  Statement  of  Defence)  are  not  

arbitrable.

19.The aforesaid preliminary objections are raised for, for inter  

alia, the following reasons :-  

“(a) the Claimants’  claim entail  a challenge to the  

validity  of  the  Oilfields  (Regulation  and  

Development) Act, 1948 (“the ORD Act”) and of the  

powers exercised under it;

(b)  the  claimants  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;

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(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  vs.  Navarang  

Studios (1981) 1 SCC 523,Amrit Banaspati Co. Ltd.  

vs. State of Punjab (1992) 2 SCC 411 and Mafatlal  

Industries Ltd. vs. 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 Appeal in Ralli Bros v. CIA Navleria (1920)

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2 KB 287.”  

20.The respondents also contended that the Arbitral  Tribunal  

cannot, or ought not, to go into or adjudicate the questions  

raised by the appellants (claimants) with respect to royalties;  

and leave the parties, if they choose, to seek the necessary  

relief before the specific forums created under the Oilfields  

(Regulation and Development) Act, 1948 and the Petroleum  

and Natural Gas Rules, 1956.     

21.The appellants (the claimants) on the other hand submitted  

that the issue of arbitrability is governed by the law of the  

seat of arbitration. The seat of the arbitration being England,  

the issue of arbitrability is governed by the English Law. It  

was also submitted that although challenge to the validity of  

the terms of PSC is governed by Indian Law (Article 32.1 of  

the PSC), nevertheless it  falls within the jurisdiction of the  

tribunal just as any other substantive dispute. The appellants  

relied upon the judgment in  Tamil Nadu Electricity Board  

Vs.  ST-CMS Electric Co. Pvt. Ltd.  1   It  was also submitted  1 (2007) 2 All ER (Comm) 701

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that  the  reliefs  claimed  are  founded,  only,  on  contractual  

rights. Further, whether or not any of those contractual rights  

are vitiated by Section 23 of the Indian Contract Act, 1872 is  

a question of substance and accordingly a dispute as to the  

underlying merits of the claim. The case of the appellants  

(claimants) assumes that respondent is entitled to rely on the  

relevant  legislation  but  the  claims  of  the  appellants  are  

purely contractual in nature.  

22.Upon consideration of the entire matter, the arbitral tribunal  

in the final award concluded as under :

Summary of Conclusions – Formal Final Partial  Award – “6.1 The Tribunal, having carefully considered the  

documentary evidence, the oral evidence and the  

submissions of the Claimants and the respondent,  

and  rejecting  all  submissions  to  the  contrary,  

hereby makes,  issues and publishes this Formal  

Final  Partial  Award  and for  the reasons set  out  

above  FINDS,  AWARDS,  ORDERS  AND  

DECLARES that the Claimants’ claims in respect  

of royalties, cess, service tax and CAG audit are  

arbitrabe.

6.2. In stating its conclusion on the four arbitrability

20      

issues identified in Section A of the List of issues  

for the May 2012 Hearing, the Tribunal wishes to  

make it clear that it is expressing no opinion on the  

merits of the parties’ respective submissions 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

21      

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 (vii) the contracts further stipulate  

that “the companies and the operations under this Contract  

shall be subject to all fiscal legislation of India” (Article 15.1).

24.The  appellant  raised  preliminary  objection  to  the  

maintainability  of  the  arbitration  petition  primarily  on  the  

ground  that  by  choosing  English  Law  to  govern  their  

agreement to arbitration and expressly agreeing to London  

seated arbitration, the parties have excluded the application  

of Part I of the Arbitration Act, 1996. It was submitted that  

the High Court of Delhi had no jurisdiction to entertain the  

objection filed by the Union of India under Section 34 of the  

Arbitration  Act,  1996.  It  was  emphasized  that  Courts  of  

England and Wales have exclusive jurisdiction to entertain  

any challenge to the award. It was pointed out that the PSCs  

were amended on two occasions. On 24th February, 2004,  

PSC  was  sought  to  be  amended  to  change  the  seat  of  

arbitration  from  London  to  Paris.  However,  on  14th

22      

September, 2011, the parties to the arbitration agreed that  

the  seat of  the  present  arbitration  proceedings  would  be  

London, England. This agreement is recorded in the Final  

Partial   Consent  Award  rendered  by  the  arbitral  tribunal  

on 29th July, 2011. As noticed earlier, the final partial consent  

award  provided  that  the  juridical  seat or  legal  place of  

arbitration for the purpose of arbitration initiated under the  

claimants notice of arbitration                   dated 16 th  

December, 2011 shall be London, England. Article 33.9 of  

the PSC provides that the arbitration shall be conducted in  

accordance  with  the  UNCITRAL  Rules,  1985.  However,  

subsequently  it  was  recorded  in  the  award  that  the  

applicable rules shall  be the UNCITRAL Arbitration Rules,  

1976. It was also submitted on behalf of the appellants that  

the objections raised by the UOI are yet to be determined by  

the  tribunal  on  merits  and  shall  be  considered  after  

considering the evidence at the time of rendering the final  

award.

25.Upon consideration of the entire matter, the High Court has  

held that undoubtedly the governing law of the contract i.e.

23      

proper law of the contract is the law of India. Therefore, the  

parties  never  intended to all  together  exclude the laws of  

India, so far as contractual rights are concerned. The Laws  

of  England  are  limited  in  their  applicability  in  relation  to  

arbitration  agreement  contained  in  Article  33.  This  would  

mean that  the English  Law 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.

24      

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  adjudged  under  the  laws  of  

England. Article 32.1 specifically provides that laws of India  

will  govern the obligations of the parties in the PSCs. The  

High Court also concluded that the effect of the interplay of  

Article  32.1  and  Article  32.2  and  33.12  leads  to  the  

conclusion that law of  England shall  operate in relation to  

matters  contained  in  Article  33  in  so  far  as  they  are  not  

inconsistent  with  the  law  of  India.  Since  the  question  of  

arbitrability of the claim is a larger question effecting public  

policy of State it should be determined by applying laws of  

India.  This  would  give  a  meaningful  effect  to  Article  32.2,  

otherwise it would be rendered otiose. On the basis of the  

aforesaid  plain  reading,  according  to  the  High  Court,  the  

conclusion  is  that  the  intention  of  the  parties  under  the  

agreement was always to remain subject to Indian laws and  

not to contravene them. It is further held that Article 33 was  

confined to conducting the arbitration in accordance with the

25      

laws of England and not for all other purposes. Relying on  

the judgment of this Court in Bhatia International  Vs. Bulk  

Trading S.A.  & Anr.  2  ,  it  has been held that  Part  I  of  the  

Arbitration Act, 1996 would be applicable as there is no clear  

express  or  implied  intention  of  the  parties  to  exclude  the  

applicability of the Arbitration Act, 1996. The High Court also  

relies  on  the  judgment  of  this  Court  in  Venture  Global  

Engineering Vs.  Satyam  Computer  Services  Ltd.  3  ,  in  

support  of  the  conclusion  that  the  Delhi  High  Court  has  

jurisdiction  to  entertain  and  adjudicate  the  petition  under  

Section 34 of the Arbitration Act, 1996. Since, according to  

High  Court,  the  dispute  raised  by  the  appellant  relate  to  

public policy of  India, the petition under Section 34 of  the  

Arbitration Act  is  maintainable.  The High Court  also gives  

additional  reasons  for  concluding  that  the  petition  to  

challenge final  partial  award is  maintainable.  According to  

the  High  Court,  the  disputes  involved  rights  in  rem.  

Therefore,  due regard has to be given to Indian laws.  An  

award  which  is  said  to  be  against  public  policy  can  be  

permitted to be challenged in India even though the seat of  

2 (2002) 4 SCC 105 3 (2008) 4 SCC 190

26      

arbitration is outside India. The High Court also took support  

from  the  doctrine  of  public  trust  with  regard  to  natural  

resources.  Since  the  appellants  are  seeking  refund  of  

amount of cess, royalties, service tax, all matters 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 infer- ence 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 re- spondents  relating to lack  of  jurisdiction of  Indian  court on the count of express choice of laws provi- sions cannot be sustained as Indian laws including  provisions of Part I of the Act are not expressly nor  impliedly excluded. The said objection is therefore

27      

rejected.”  

26.It is this judgment of the High Court which is subject matter  

of this appeal.     

27.We have heard the learned counsel for the parties.  

28.Learned senior counsel for both the parties have made very  

elaborate oral submissions. These submissions have been  

summed up and supplemented by the written submissions.  

Dr. Singhvi appearing for the appellants submitted that once  

the English Law is selected as the proper law of arbitration,  

the applicability of Arbitration Act, 1996 would be ruled out.  

He submits that the High Court has wrongly intermingled the  

issues relating to the challenge to the arbitral proceedings or  

the arbitration award with the merits of the disputes relating  

to the underlying contract.  According to him, even if the law  

laid down in Bhatia International (supra) is applicable, the  

arbitral tribunal would apply the provisions contained in the  

Indian  Contract  Act.   But  the  English  Courts  will  have  

jurisdiction over the control and supervision of the arbitration

28      

including, challenge to the arbitral award.  In support of his  

submission,  Dr.  Singhvi  relies  on  Videocon  Industries  

Limited Vs.  Union of India & Anr.  4    He has also relied on  

Yograj  Infrastructure  Limited Vs.  Ssang  Yong  

Engineering  and  Construction  Company  Limited  5  ,   M/s  

Dozco India P. Ltd. Vs. M/s Doosan Infracore Co. Ltd.  6  ,  

Bharat  Aluminium  Company Vs.  Kaiser  Aluminium  

Technical Services Inc.  7   

29.Dr. Singhvi submitted that the reliance placed by the High  

Court  on  Venture  Global  Engineering  (supra) is  

misplaced.  In that case, the Court was not concerned with a  

clause such as Article  32.1  of  the PSC,  which  has to  be  

interpreted  subject  to  the  provisions  contained  in  Article  

33.12.  According to Dr. Singhvi, the ratio of Venture Global  

Engineering  (supra) has  lost  its  efficacy  as  it  has  been  

overruled by the Constitution Bench in  Bharat Aluminium  

Company  (supra).   Dr.  Singhvi  then  submitted  that  the  

concern shown by the High Court  for  Indian public  policy  

4 (2011) 6 SCC 161 5 (2011) 9 SCC 735 6 (2009) 3 ALR 162 7 (2012) 9 SCC 552

29      

was wholly misplaced and erroneous.  The High Court has  

failed to appreciate that Article 32.1 and 32.2 deal only with  

the proper law of the contract and not with the proper law of  

the arbitration agreement. The High Court has erroneously  

distinguished  the  ratio  of  law  laid  down  in  Videocon  

Industries Limited (supra) on the ground that although the  

arbitration clause therein was the same but the question of  

public policy had not been addressed by the Court.  Relying  

on  State  of  Gujarat  &  Anr. Vs.  Justice  R.A.  Mehta  

(Retired)  &  Ors.  8  ,  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  

8 (2013) 3 SCC 1

30      

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  

Global Engineering (supra) as the arbitration agreement is  

pre BALCO.  He submits that in order to determine whether  

Arbitration  Act,  1996  is  excluded,  the  contract  had  to  be  

seen as a whole. Here, the contract is in India, for the work  

to be done in India over 25 years;  secondly,  it  deals with  

natural  resources,  Union  of  India  is  a  trustee  of  these  

resources for the citizens of India.  London was designated  

as the seat of arbitration only to provide certain measure of  

comfort level to the foreign parties.  The contract can not be  

read in such a way as to exclude the Arbitration Act, 1996.  

The High Court has correctly concluded that arbitrability had  

to  be  decided  by  taking  into  consideration  Indian  Laws,  

which would include the Indian Arbitration Act and not under

31      

the English Arbitration Act, 1996.  He emphasized that the  

present  proceedings  relate  to  the  interpretation  of  the  

contract, which is of national importance to develop the oil  

rich areas in the Indian Coasts.  He points out that under the  

PSC, the contractor has agreed to be always mindful of the  

rights  and  interests  of  India  in  the  conduct  of  petroleum  

operations [Article 7.3(a)].  Mr. Ganguly also relied on Article  

32.1 and 32.2 and submitted that Contract is to be governed  

and interpreted in accordance with laws of India.  He points  

out that there is a negative covenant in Article 32.2, wherein  

Government or the contractor are not entitled to exercise the  

rights, privileges, and powers conferred under the PSC in a  

manner which will  contravene laws of  India.   Mr.  Ganguly  

further pointed out that the High Court has correctly applied  

the law laid down by this court in Bhatia International  and  

Venture Global Engineering (supra).  He also objected to  

the additional documents, which are sought to be relied upon  

by the petitioners in I.A. No. 7 of 2014.  He submitted that  

none of these documents were on the record before the High  

Court and can not be permitted to be relied on for the first  

time in this Court. He, therefore, submitted that I.A. No. 2

32      

ought to be dismissed.  He submitted that  similar  request  

was made before the High Court, which was rejected.   

31.Mr. Ganguly emphasized that the issues raised by the Union  

of  India  are  of  public  law  and  not  purely  contractual  as  

sought to be projected by the appellants. He points out that  

the appellants have sought a number of reliefs with respect  

to CAG Audit.  It is a 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      

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 juridical seat (or legal place) of  

arbitration for the purposes of the arbitration initiated under  

the  Claimants’  Notice  of  Arbitration  dated  16th December,  

2010 shall be London, England. The parties are also agreed  

that hearings of the Notice of Arbitration may take place at  

Paris, France, Singapore or any other location the Tribunal  

considers may be convenient. It is also agreed by the parties  

that the terms and conditions of the arbitration agreement in  

Article 33 of the PSCs shall remain in full force and effect  

and be applicable to the arbitration proceedings.

34      

35.The essential dispute between the parties is as to whether  

Part I of the Arbitration Act, 1996 would be applicable to the  

arbitration agreement irrespective of the fact that the seat of  

arbitration is outside India. To find a conclusive answer to  

the  issue  as  to  whether  applicability  of  Part  I  of  the  

Arbitration  Act,  1996  has  been  excluded,  it  would  be  

necessary to discover the intention of  the parties.  Beyond  

this parties are not agreed on any issue.   

36.We are also of the opinion that since the ratio of law laid  

down  in  Balco  (supra) has  been  made  prospective  in  

operation by the Constitution Bench itself, we are bound by  

the  decision  rendered  in  Bhatia  International (supra).  

Therefore, at the outset, it would be appropriate to reproduce  

the relevant ratio of  Bhatia International in paragraph 32  

which is as under :-

“32. To  conclude,  we  hold  that  the  provisions  of  Part I would apply to all arbitrations and to all pro- ceedings relating thereto. Where such arbitration is  held  in  India  the provisions of  Part  I  would  com- pulsorily apply and parties are free to deviate only to  the extent permitted by the derogable provisions of  Part I. In cases of international commercial arbitra- tions held out of India provisions of Part I would ap- ply unless the parties by agreement, express or im-

35      

plied,  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.”

37.In view of the aforesaid, it would be necessary to analyze  

the relevant Articles of the PSC, to discover the real intention  

of the parties as to whether the provisions of Arbitration Act,  

1996 have been excluded. It must, immediately, be noticed  

that  Articles  32.1  and  32.2  deal  with  applicable  law  and  

language 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 (Art.32) deals with the proper law of the

36      

contract, the other (Art.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 that each party  

shall appoint one arbitrator. The arbitrators appointed by the  

parties  shall  appoint  the  third  arbitrator.  In  case,  the  

procedure under Article 33.4 fails, the aggrieved party can  

approach the Permanent Court  of Arbitration at  Hague for  

appointment of an arbitrator (33.5). Further, in case the two  

arbitrators fail to make an appointment of the third arbitrator  

within 30 days of the appointment of the second arbitrator,  

again  the  Secretary  General  of  the  Permanent  Court  of  

Arbitration  at  Hague  may,  at  the  request  of  either  party  

appoint the third arbitrator. In the face of this, it is difficult to  

appreciate the submission of the respondent – Union of India  

that the Arbitration Act, 1996 (Part I) would be applicable to

37      

the  arbitration  proceedings.  In  the  event,  Union  of  India  

intended to ensure that the Arbitration Act, 1996 shall apply  

to  the  arbitration  proceedings,  Article  33.5  should  have  

provided that in default  of a party appointing its arbitrator,  

such  arbitrator  may,  at  the  request  of  the  first  party  be  

appointed  by the  Chief  Justice  of  India  or  any  person  or  

Institution designated by him. Thus, the Permanent Court of  

Arbitration at Hague can be approached for the appointment  

of the arbitrator, in case of default by any of the parties. This,  

in  our  opinion,  is  a  strong  indication  that  applicability  of  

Arbitration  Act,  1996  was  excluded  by  the  parties  by  

consensus.  Further,  the  arbitration  proceedings  are  to  be  

conducted in accordance with the UNCITRAL Rules, 1976  

(33.9).  It  is  specifically  provided that  the right  to  arbitrate  

disputes  and  claims  under  this  contract  shall  survive  the  

termination of this contract (33.10).  

39.The  Article  which  provides  the  basis  of  the  controversy  

herein  is  Article  33.12  which  provides  that  venue of  the  

arbitration  shall  be  London  and  that  the  arbitration  

agreement shall  be governed by the laws of England.   It  

appears, as observed earlier, that by a Final Partial Consent

38      

Award,  the parties  have agreed that  the  juridical  seat (or  

legal  place  of  arbitration)  for  the  purposes  of  arbitration  

initiated under the claimants’ notice of arbitration dated 16th  

December, 2010 shall be London, England.

40.We are of  the opinion,  upon a  meaningful  reading of  the  

aforesaid  Articles  of  the  PSC,  that  the  proper  law  of  the  

contract  is  Indian  Law;  proper  law  of  the  arbitration  

agreement is the law of England. Therefore, 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

39      

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 provides  

that the arbitration agreement contained in Article 33.12 shall  

be  governed  by  the  laws  of  England.  Therefore,  in  our  

opinion,  the  conclusion  is  inescapable  that  applicability  of  

Arbitration  Act,  1996  has  been  ruled  out  by  a  conscious  

decision and agreement of the parties. Applying the ratio of  

law as laid down in  Bhatia International (supra) it  would  

lead  to  the  conclusion  that  the  Delhi  High  Court  had  no  

jurisdiction to entertain the petition under Article 34 of  the  

Arbitration Act, 1996.   

42.Article  33 provides  for  ADR –  its  limited  application  is  to  

dispute  resolution  through  arbitration  as  opposed  to  civil

40      

litigation.   Therefore,  there  is  no  violation  of  32.2,  as  

Arbitration Act, 1996, in fact signifies Parliamentary sanction  

of ADR.  In fact, Article 32.3 indicates that obligations under  

PSC and Arbitration Agreement are separate.  Hence, it is  

provided that English shall be the language of the Contract.  

Followed by the stipulation that English shall also be the law  

of  arbitral  proceedings.   Therefore,  the  conclusion  of  the  

High Court that PSC is a composite contract is not in tune  

with the approved provisions of the PSC.  This separateness  

is further emphasized by Article 32.1 by making the provision  

“subject  to  the  provision  of  Article  33.12”.   Laws  of  India  

have been made applicable to the substantive contract.  Law  

of  England  govern  the  Dispute  Resolution  Mechanism.  

Provision for  Arbitration is  a deliberate election of  remedy  

other than usual remedy of a civil suit.  The ADR mechanism  

under  the  Arbitral  Laws  of  different  nations  is  legally  and  

jurisprudentially  accepted,  sanctified  by  the  Highest  Law  

Making Bodies of the member States, signatories to the New  

York Convention.  India is not only a signatory to the New  

York  Convention,  but  it  has  taken  into  account  the  

UNCITRAL Model  Laws and the UNCITRAL Rules,  whilst

41      

enacting the Arbitration Act, 1996.  Therefore, it would not be  

possible to accept the submission of Mr. Ganguly that the  

Law  of  the  Contract  is  also  the  Law  of  the  Arbitration  

Agreement.  

43.In our opinion, it is too late in the day to contend that the  

seat  of  arbitration  is  not  analogous  to  an  exclusive  

jurisdiction clause. This view of ours will  find support from  

numerous  judgments  of  this  Court.  Once  the  parties  had  

consciously agreed that the  juridical seat of  the arbitration  

would be London and that the arbitration agreement will be  

governed 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

42      

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 relevant clauses  of Articles 33, 34 and 35 of the PSC are extracted  below:

“33.1.  Indian law to govern.—Subject to the provi- sions  of  Article  34.12,  this  contract  shall  be  gov- erned and interpreted in accordance with the laws  of India.

33.2. Laws of India not to be contravened.—Subject  to Article 17.1 nothing in this contract shall entitle  the contractor to exercise the rights, privileges and  powers conferred upon it by this contract in a man- ner which will contravene the laws of India.

* * *

34.3.  Unresolved  disputes.—Subject  to  the  provi- sions  of  this  contract,  the  parties  agree  that  any  matter,  unresolved  dispute,  difference  or  claim  which cannot be agreed or settled amicably within  twenty-one (21) days may be submitted to a sole  expert (where Article 34.2 applies) or otherwise to  an Arbitral Tribunal for final decision as hereinafter  provided.

43      

* * *

34.12.  Venue and law of  arbitration agreement.— The venue of sole expert, conciliation or arbitration  proceedings  pursuant  to  this  article,  unless  the  parties  otherwise  agree,  shall  be  Kuala  Lumpur,  Malaysia, and shall be conducted in the English lan- guage. Insofar as practicable, the parties shall con- tinue to implement  the terms of  this  contract  not- withstanding  the  initiation  of  arbitral  proceedings  and any pending claim or dispute. Notwithstanding  the provisions of Article 33.1, the arbitration agree- ment contained in this Article 34 shall be governed  by the laws of England.

* * *

35.2.  Amendment.—This  contract  shall  not  be  amended, modified, varied or supplemented in any  respect except by an instrument in writing signed by  all the parties, which shall state the date upon which  the  amendment  or  modification  shall  become  effective.”

45.We are of  the opinion that  in the impugned judgment the  

High Court  has erred in  not  applying the ratio  of  law laid  

down in  Videocon Industries Ltd.  (supra) in the present  

case. The first issue raised in Videocon Industries Limited  

(supra) was  as  to  whether  the  seat  of  arbitration  was  

London or Kuala Lumpur.  The second issue was with regard  

to the Courts that would have supervisory jurisdiction over  

the  arbitration  proceedings.  Firstly,  the  plea  of  Videocon

44      

Industries Limited was that the seat could not have been  

changed from Kuala Lumpur to London only on agreement  

of  the  parties  without  there  being  a  corresponding  

amendment in the PSC.  This plea was accepted.  It  was  

held  that  seat  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 Lum- pur.  If  the parties wanted to amend Article 34.12,  they could have done so only by a written instru- ment  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 Lon- don cannot be interpreted as anything except phys- ical 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

45      

governed  by  the  English  Law.   This  issue  was  decided  

against Union of India and it was held that Delhi High Court  

did not have the jurisdiction to entertain the petition filed by  

Union of India under Section 9 of the Arbitration Act.

47.In  the  present  appeal,  this  Court  is  also  considering  the  

issue  as  to  whether  the  petition  under  Section  34  of  the  

Arbitration Act, 1996 filed by Union of India in Delhi would be  

maintainable.   The  parties  have  made  the  necessary  

amendment in the PSCs to provide that the juridical seat of  

arbitration  shall  be  London.   It  is  also  provided  that  the  

arbitration agreement will be governed by laws of England.  

Therefore, the ratio in Videocon Industries Limited (supra)  

would be relevant and binding in the present appeal.   

48.The aforesaid judgment  (Videocon) has been rendered by  

this  Court  upon  consideration  of  Venture  Global  

Engineering (supra).  Venture  Global  Engineering and  

Videocon Industries Ltd. are both judgments delivered by  

two-Judge  Bench.   In  our  opinion,  the  factual  and  legal  

issues involved in the  Videocon Industries  case are very

46      

similar  to  the  controversy  involved  in  the  present  appeal.  

The Arbitration Agreement in this appeal is identical to the  

arbitration agreement in  Videocon Industries.  In fact, the  

factual  situation  in  the  present  appeal  is  on  a  stronger  

footing than in  Videocon Industries Limited (supra).   As  

noticed  earlier,  in  Videocon  Industries,  this  Court  

concluded that the parties could not have altered the seat of  

arbitration without making the necessary amendment to the  

PSC.   In  the  present  appeal,  necessary  amendment  has  

been  made  in  the  PSC.   Based  on  the  aforesaid  

amendment,  the  Arbitral  Tribunal  has  rendered  the  Final  

Partial  Consent  Award  of  14th September,  2011 recording  

that the juridical seat (or legal place) of the arbitration for the  

purposes of arbitration initiated under the Claimant’s Notice  

of Arbitration                              dated 16 th December, 2010  

shall  be  London,  England.   Furthermore,  the  judgment  in  

Videocon Industries is subsequent to Ventura Global.  We  

are,  therefore,  bound by the ratio  laid  down  in  Videocon  

Industries Limited (supra).

49.We  may  also  point  out  that  the  judgment  in  Videocon

47      

Industries has been followed on numerous occasions by a  

number  of  High  Courts.  This  apart,  the  judgment  of  this  

Court  in  Videocon  Industries  Ltd.  also  reflects  the  view  

taken by the Courts in England on the same issues. In the  

case of A Vs. B  9   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  

9 2007 (1) All E.R. (Comm) 591

48      

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 shall be conducted  

in  English in  Singapore in  accordance with  the Singapore  

International Arbitration Centre (SIAC) Rules. (Clause 27.1).  

Clause 27.2 provided that the arbitration shall take place in  

Singapore and be conducted in English language. This Court  

held that having agreed that the seat of arbitration would be  

Singapore  and  that  the  curial  law  of  the  arbitration  

proceedings would be SIAC Rules, it was no longer open to  

the appellant to contend that an application under Section  

11(6) of the Arbitration Act, 1996 would be maintainable.  

53.This judgment has specifically taken into consideration the  

law laid down in Bhatia International (supra) and Venture  

Global (supra).   The same view has been taken by Delhi  

High Court, Bombay High Court and the Gujarat High Court,

49      

in fact this Court in Videocon has specifically approved the  

observations made by the Gujarat High Court in  Hardy Oil  

(supra).

54.The effect of choice of seat of arbitration was considered by  

the Court of Appeal in  C Vs.  D  10  . This judgment has been  

specifically  approved  by  this  Court  in  Balco  (supra) and  

reiterated in Enercon (supra).                 In C Vs. D (supra),  

the Court of Appeal has observed:-

“Primary Conclusion 16.  I  shall  deal  with  Mr  Hirst's  arguments  in  due  course but, in my judgment, they fail to grapple with  the central point at issue which is whether or not, by  choosing London as the seat of the arbitration, the  parties  must  be  taken  to  have  agreed  that  proceedings  on  the  award  should  be  only  those  permitted by English law. In my view they must be  taken to have so agreed for the reasons given by  the  judge.  The  whole  purpose  of  the  balance  achieved by the Bermuda Form (English arbitration  but applying New York law to issues arising under  the policy) is that judicial remedies in respect of the  award should be those permitted by English law and  only those so permitted. Mr Hirst could not say (and  did not say) that English judicial remedies for lack of  jurisdiction  on  procedural  irregularities  under  sections  67  and  68  of  the  1996  Act  were  not  permitted; he was reduced to saying that New York  judicial  remedies  were also permitted.  That,  however, would be a recipe for litigation and (what  is  worse)  confusion  which  cannot  have  been  

10 [2008] 1 Lloyd’s Law Rep 239

50      

intended by the parties. No doubt New York law has  its own judicial remedies for want of jurisdiction and  serious  irregularity  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 Vs.  Enesa Engenharia SA – Enesa  11  . 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 arbitration process.  

It was observed that “this follows from the express terms of  

the Arbitration Act, 1996 and, in particular, the provisions of  

11 (2012) WL 14764

51      

Section 2 which  provide that  Part  I  of  the Arbitration Act,  

1996 applies where the seat of the arbitration is in England  

and Wales or Northern Ireland. This immediately establishes  

a strong connection between the arbitration agreement itself  

and  the  law  of  England.  It  is  for  this  reason  that  recent  

authorities have laid stress upon the locations of the seat of  

the  arbitration  as  an  important  factor  in  determining  the  

proper law of the arbitration agreement.”  

56.In our opinion, these observations are fully applicable to the  

facts  and  circumstances  of  this  case.  The  conclusion  

reached by the High Court would lead to the chaotic situation  

where the parties would be left rushing between India and  

England for redressal of their grievances. The provisions of  

Part  I  of  the Arbitration  Act  1996 (Indian)  are  necessarily  

excluded;  being  wholly  inconsistent  with  the  arbitration  

agreement which provides “that arbitration agreement shall  

be  governed  by  English  law.”  Thus  the  remedy  of  the  

respondent  to  challenge  any  award  rendered  in  the  

arbitration  proceedings  would  lie  under  the  relevant  

provisions contained in Arbitration Act, 1996 of England and

52      

Wales.  Whether or  not  such an application would  now be  

entertained by the courts in England is not for us to examine,  

it  would have to be examined by the Court  of  Competent  

Jurisdiction in England.  

Public Policy:

57.Mr. Ganguly has vehemently argued that the issues involved  

here relate to violation of public policy of India. Therefore,  

the applicability of Part I of the Indian Arbitration Act cannot  

be excluded even if the seat of arbitration is London. It would  

also, according to          Mr. Ganguly, make no difference  

that  the arbitration  agreement  specifically  provides for  the  

arbitration  agreement  to  be  governed  by  the  Laws  of  

England.  According  to  Mr.  Ganguly,  proper  law  of  the  

contract would be relevant to determine the question as to  

whether  the  interim  final  award  would  be  amenable  to  

challenge under Section 34 of the Arbitration Act, 1996. In  

our opinion, the aforesaid submission of the learned counsel  

runs counter  to the well  settled law in India as well  as in  

other jurisdictions. As noticed earlier,           Mr. Ganguly has  

submitted  that  the  disputes  in  relation  to  royalties,  cess,

53      

service 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 arbit- rations 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 case, the parties have by agreement provided that the  

juridical seat of arbitration will be in London. On the basis of  

the aforesaid agreement, necessary amendment has been

54      

made in the PSCs. On the basis of the agreement and the  

consent of the parties, the  Arbitral Tribunal has made the  

“Final Partial Consent Award” on 14th September, 2011 fixing  

the  juridical  seat (or  legal  place)  of  arbitration  for  the  

purposes of arbitration initiated under the claimants notice of  

arbitration dated 16th December, 2010 in London, England.  

To make it  even further clear that  the award also records  

that any hearing in the arbitration may take place in Paris,  

France,  Singapore  or  any  other  location  the  tribunal  

considers convenient. Article 33.12 stipulates that arbitration  

proceedings shall  be  conducted in  English  language.  The  

arbitration  agreement  contained  in  Article  33  shall  be  

governed by the laws of England. A combined effect of all  

these factors would  clearly  show that  the parties have by  

express agreement excluded the applicability of Part I of the  

Arbitration Act, 1996 (Indian) to the arbitration proceedings.

59.We are also unable to agree with Mr. Ganguly that Part I of  

the Arbitration Act, 1996 (Indian) would be applicable in this  

case, in view of the law laid down by this Court in Venture  

Global  Engineering (supra).  In  our  opinion,  even  the

55      

second  part  of  the  ratio  in  Venture  Global  Engineering  

(supra) from paragraph 32 of the judgment onwards would  

not be applicable to the facts and circumstances of this case.  

Firstly,  in  our  opinion,  all  the  disputes  raised  by  the  

petitioners  herein  are  contractual  in  nature.  Secondly,  the  

performance of any of these obligations would not lead to  

any infringement of any of the laws of India per se. Thirdly,  

the non-obstante clause which was under consideration in  

Venture  Global is  non-existent  in  the  present  case.  In  

Venture  Global,  the  court  was  concerned  with  direct  

violation of Foreign Exchange Management Act. The actions  

of the respondents therein would also have been contrary to  

various provisions of  the Companies Act  in  the event  the  

shares were to be transferred in accordance with the award.  

Therefore, this Court was persuaded to take the view that  

inspite of the applicability of Part I having been excluded as  

the seat of arbitration was outside nonetheless Part I would  

apply as the transfer of the shares would be against 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

56      

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  

performance of the contractual obligations under the PSCs.  

In view of  what  we have said earlier,  it  is  not  possible to  

sustain  the  conclusion  reached  by  the  High  Court.   The  

arbitration agreement can not be jettisoned on the plea that

57      

award,  if  made  against  the  Government  of  India,  would  

violate Public Policy of India.  Merely because the Arbitral  

Tribunal has held that claims are arbitral does not mean that  

the claims have been accepted and an award adverse to  

India has been given.  We, therefore, have no hesitation in  

rejecting  the  submission  made  by  Mr.  Ganguly.  For  the  

same  reasons,  we  are  unable  to  sustain  the  conclusions  

reached by the High Court of Delhi.     

60.Another  good  reason  for  not  accepting  or  approving  the  

conclusions reached by the High Court is that it has failed to  

distinguish between the law applicable to the proper law of  

the  contract  and  proper  law of  the  arbitration  agreement.  

The High Court  has also failed to notice that by now it  is  

settled,  in  almost  all  international  jurisdictions,  that  the  

agreement  to  arbitrate is  a separate contract  distinct  from  

the  substantive  contract  which  contains  the  arbitration  

agreement.   This  principle of  severability of  the arbitration  

agreement from the substantive contract is indeed statutorily  

recognized by Section 16 of the Indian Arbitration Act, 1996.  

Section 16(1) specifically provides as under:-

58      

“16.Competence of arbitral tribunal to rule on its  jurisdiction.- (1) The arbitral tribunal may rule on  its  own jurisdiction,  including ruling on any objec- tions with respect to the existence or validity of the  arbitration agreement, and for that purpose,--  

(a) an arbitration clause which forms part of a con- tract shall be treated as an agreement independent  of the other terms of the contract; and  

(b) a decision by the arbitral tribunal that the con- tract is null and void shall not entail ipso jure the in- validity of the arbitration clause.”

61.A  bare  perusal  of  the  aforesaid  would  show  that  the  

arbitration agreement is independent of the other terms of  

the contract.  Further, even if  the contract is declared  null  

and  void, it would not lead to the foregone conclusion that  

the arbitration clause in invalid.  The aforesaid provision has  

been considered by this Court in a number of cases, which  

are as follows:-

Reva  Electric  Car  Company  P.  Ltd. Vs.  Green  Mobil  .  12,  

T  oday Homes and Infrastructure Pvt. Ltd.   Vs. Ludhiana Im-

provement Trust and Anr.,13,  Enercon (India) Ltd. & Ors. Vs.  

Enercon GMBH & Anr.,14 W  orld Sport Group (Mauritius) Ltd.    

Vs. MSM Satellite (Singapore) PTC Ltd. [Civil Appeal No. 895  

12 (2012) 2 SCC 93 13 2013 (7) SCALE 327 14 2014 (1) Arb. LR 257 (SC)

59      

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 disputes and claims under this  Contract  shall  survive the termination of  this  con- tract.”

60      

63.We  are,  therefore,  unable  to  uphold  the  conclusions  

recorded  by  the  High  Court  that  the  applicability  of  the  

English Law would be limited in its application only to the  

conduct  of  the reference.   For  the same reasons,  we are  

unable to accept the submissions made by              Mr.  

Ganguly on this issue.  

64.In  1982,  the  Government  provided  a  model  Production  

Sharing  Contract  to  potential  bidders,  which  provided  a  

governing law clause, which read as follows:-

“32.1 This  contract  shall  be  governed  and  inter-

preted in accordance with laws of India.”   

This was specifically amended and incorpor-

ated in the present PSCs signed on 22nd December,  

1994 and provided that  the governing law clause  

(32.1) would be “subject to the provision of Article  

33.12”.   

65.Considering  the  aforesaid  two  provisions,  it  leaves  no  

manner of doubt that Article 32.2  would have no impact on  

the designated juridical seat as well as governing law of the

61      

arbitration agreement.  This would become evident from a  

perusal  of  the  Final  Partial  Consent  Award  dated  14th  

September, 2011, signed by all  the three members of  the  

arbitral  tribunal  recording  that  the  juridical  seat  of  the  

arbitration  initiated under  the Claimant’s  Notice  dated 16th  

December, 2010 shall be London, England.  Therefore, we  

are unable to accept the conclusion reached by the Delhi  

High Court and the submission made by Mr. Ganguly that  

Arbitration  Act,  1996  (Part  I)  would  be  applicable  to  the  

arbitration agreement.   

66.Mr. Ganguly has next sought to persuade us that the seat of  

arbitration shall be in India as the PSC is governed by the  

law of India. According to Mr. Ganguly, laws of India would  

include the Arbitration Act, 1996. Therefore, irrespective of  

the  provisions  contained  in  Article  33.12,  Arbitration  Act,  

1996  would  be  applicable  to  arbitration  proceedings.  The  

English  law  would  be  applicable  only  in  relation  to  the  

conduct of the arbitration upto the passing of the Partial Final  

Award.  We are unable to accept the aforesaid submissions  

of   Mr.  Ganguly.   As  noticed  earlier,  Article  32.1  itself

62      

provides that it shall be subject to the provision of  Article  

33.12.  Article 33.12 provides that the arbitration agreement  

contained in  this  Article  shall  be governed by the laws of  

England.   The term ‘laws of  England’  cannot be given a  

restricted  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).”

63      

67.From the above, it is evident that it was open to the parties  

to  agree  that  the  law  governing  the  substantive  contract  

(PSC)  would  be  different  from  the  law  governing  the  

arbitration agreement. This is precisely the situation in the  

present  case.  Article  32.1  specifically  provides  that  the  

performance of  the contractual  obligations under  the PSC  

would be governed and interpreted under the laws of India.  

So far as the alternative dispute redressal agreement i.e. the  

arbitration agreement is concerned, it would be governed by  

laws of England. There is no basis on which the respondents  

can be heard to say that the applicability of laws of England  

related only to the conduct of arbitration reference. The law  

governing the conduct of the arbitration is interchangeably  

referred to as the curial law or procedural law or the lex fori.  

The  delineation  of  the  three  operative  laws  as  given  in  

Naviera Amazonica (supra) has been specifically followed  

by this Court in the case of  Sumitomo (supra). The court  

also, upon a survey, of a number of decisions rendered by  

the English Courts and after referring to the views expressed  

by  learned  commentators  on  International  Commercial

64      

Arbitration concluded that:-

“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 arbit- rate and the performance of that agreement.”

68.In coming to the aforesaid conclusion, this Court relied on a  

passage from Law and Practice of Commercial Arbitration in  

England, 2nd Edn. by Mustill and Boyd which is as under :

“An  agreed  reference  to  arbitration  involves  two  groups of obligations. The first concerns the mutual  obligations of the parties to submit future disputes,  or an existing dispute to arbitration, and to abide by  the award of  a  tribunal  constituted in  accordance  with the agreement. It is now firmly established that  the arbitration agreement which creates these oblig- ations is a separate contract, distinct from the sub- stantive agreement in which it is usually embedded,  capable of surviving the termination of the substant- ive agreement and susceptible of premature termin- ation by express or implied consent, or by repudi- ation or frustration, in much the same manner as in  more ordinary forms of contract. Since this agree- ment has a distinct life of its own, it may in principle  be governed by a proper law of its own, which need  not be the same as the law governing the substant- ive contract.

The second group of obligations, consisting of what   is generally referred to as the ‘curial law’ of the ar- bitration, concerns the manner in which the parties  and the arbitrator are required to conduct the refer- ence of a particular dispute. According to the Eng- lish theory of arbitration, these rules are to be ascer- tained by reference to the express or implied terms  of the agreement to arbitrate. This being so, it will

65      

be found in the great majority of cases that the curi- al law, i.e., the law governing the conduct of the ref- erence, is the same as the law governing the obliga- tion 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 govern- ing  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, call for the  application of any one or more of the following laws —

1. The proper law of the contract, i.e., the law  governing the contract which creates the sub- stantive  rights  of  the  parties,  in  respect  of  which the dispute has arisen.

2.  The  proper  law  of  the  arbitration  agree- ment, i.e., the law governing the obligation of  the parties to submit the disputes to arbitra- tion, and to honour an award.

3. The curial law, i.e., the law governing the   conduct of the individual reference.

* * *

1. The proper law of the arbitration agreement gov- erns the validity of  the  arbitration  agreement,  the  question whether a dispute lies within the scope of

66      

the arbitration agreement; the validity of the notice  of  arbitration;  the  constitution  of  the  tribunal;  the  question whether an award lies within the jurisdic- tion of the arbitrator; the formal validity of the award;  the  question  whether  the  parties  have  been  dis- charged from any obligation to arbitrate future dis- putes.

2. The curial law governs the manner in which the  reference  is  to  be  conducted;  the  procedural   powers  and  duties  of  the  arbitrator;  questions  of  evidence; the determination of the proper law of the  contract.

3.  The  proper  law  of  the  reference  governs  the  question whether the parties have been discharged  from their obligation to continue with the reference  of the individual dispute.

* * *

In  the  absence  of  express  agreement,  there  is  a  strong prima facie presumption that the parties in- tend the curial law to be the law of the ‘seat’ of the  arbitration, i.e., the place at which the arbitration is  to  be  conducted,  on  the  ground  that  that  is  the  country most  closely connected with the proceed- ings. So in order to determine the curial law in the  absence of  an express choice by the parties it  is  first necessary to determine the seat of the arbitra- tion, by construing the agreement to arbitrate.”

69.The same legal position is reiterated by this Court in Dozco  

(supra). In paragraph 12 of the judgment, it is observed as  

follows :

“12. In the backdrop of these conflicting claims, the

67      

question boils down to as to what is the true inter- pretation of Article 23. This Article 23 will have to be  read in the backdrop of Article 22 and more particu- larly,  Article 22.1. It  is clear from the language of  Article 22.1 that the whole agreement would be gov- erned by and construed in accordance with the laws  of The Republic of Korea. It is for this reason that  the respondent heavily relied on the law laid down  in  Sumitomo Heavy Industries Ltd. v.  ONGC Ltd.6  This judgment is a complete authority on the pro- position 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 arbit- ration 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 agreement with the aforesaid judgment.  

71.In view of the aforesaid binding precedent, we are unable to  

accept  the submission of  Mr.  Ganguly that  the Arbitration  

Act,  1996  has  not  been  excluded  by  the  parties  by

68      

agreement.   For  the  same  reasons,  we  are  unable  to  

approve the conclusions reached by the Delhi  High Court  

that  reference  to  laws  of  England  is  only  confined  to  the  

procedural  aspects  of  the  conduct  of  the  arbitration  

reference.  

72.We are  also  unable  to  agree  with  the  submission  of  Mr.  

Ganguly that since the issues involved herein relate to the  

public policy of India, Part I of the Arbitration Act, 1996 would  

be applicable. Applicability of Part I of Arbitration Act, 1996 is  

not  dependent  on  the  nature  of  challenge  to  the  award.  

Whether or  not  the award is challenged on the ground of  

public policy, it would have to satisfy the pre-condition that  

the  Arbitration  Act,  1996  is  applicable  to  the  arbitration  

agreement. In our opinion, the High Court has committed a  

jurisdictional error in holding that the provisions contained in  

Article  33.12  is  relevant  only  for  the  determination  of  the  

curial law applicable too the proceedings. We have already  

noticed earlier that the parties by agreement have provided  

that the  juridical seat of the arbitration shall be in London.  

Necessary amendment has also been made in the PSCs, as

69      

recorded  by  the  Final  Partial  Consent  Award  dated  14th  

September,  2011. It  is  noteworthy that  the Arbitration Act,  

1996  does  not  define  or  mention  juridical  seat.  The  term  

‘juridical  seat’ on  the other  hand is  specifically  defined  in  

Section 3 of the English Arbitration Act. Therefore, this would  

clearly  indicate  that  the  parties  understood  that  the  

arbitration  law  of  England  would  be  applicable  to  the  

arbitration agreement.  

73.In  view  of  the  aforesaid,  we  are  unable  to  uphold  the  

conclusion  arrived  at  by  the  Delhi  High  Court  that  the  

applicability  of  Arbitration  Act,  1996  to  the  arbitration  

agreement in the present case has not been excluded.      

74.In view of the above, we hold that:

(i) The petition filed by respondents under Section  

34 of the Arbitration Act, 1996 in the Delhi High  

Court is not maintainable.  

(ii) We further over-rule and set aside the conclusion

70      

of the High Court that, even though the arbitra-

tion agreement would be governed by the laws of  

England  and  that  juridical  seat  of  arbitration  

would be in London, Part I of the Arbitration Act  

would still  be applicable as the laws governing  

the substantive contract are Indian Laws.  

(iii) In the event, a final award is made against the  

respondent, the enforceability of the same in In-

dia,  can  be  resisted  on  the  ground  of  Public  

Policy.   

(iv) The  conclusion  of  the  High  Court  that  in  the  

event, the award is sought to be enforced outside  

India, it would leave the Indian party remediless  

is without any basis as the parties have consen-

sually provided that the arbitration agreement will  

be governed by  the English law.  Therefore, the  

remedy against the award will have to be sought  

in  England,  where the juridical  seat  is  located.  

However, we accept the submission of the appel-

71      

lant that since substantive law governing the con-

tract is Indian Law, even the Courts in England,  

in case the arbitrability is challenged, will have to  

decide the issue by applying Indian Law viz. the  

principle of public policy etc. as it prevails in Indi-

an Law.   

75.In  view  of  the  above,  the  appeal  is  allowed  and  the  

impugned judgment of the High Court is set aside.  

……………………………….J. [Surinder Singh Nijjar]

………………………………..J.         [A.K.Sikri]

New Delhi; May 28, 2014.

ITEM NO.1-A              COURT No.2              SECTION XIV (For judgment)

          S U P R E M E   C O U R T   O F   I N D I                       RECORD OF PROCEEDINGS

    CIVIL APPEAL NO....... OF 2014 (Arising out of S.L.P. (Civil) No. 20041 of 2013)

Reliance Industries Ltd. & Anr.              Appellant(s)

   Versus

U.O.I.                Respondent(s)

DATE :28/05/2014       This matter was called                           on for pronouncement of judgment  today.  

For Appellant(s)    Mr.Sameer Parekh, Adv.    Mr.Utsav Trivedi, Adv. for     M/s P.H. Parekh & Co.

For Respondent(s)    Mr. A.K. Ganguli, Sr.Adv.     Mr. Abhijeet Sinha, Adv.     Ms. Swati Sinha, Adv.     Mr. Vishal Gehrana, Adv.for     M/s Fox Mandal & Co.

      Hon'ble Mr. Justice Surinder Singh Nijjar  pronounced the  judgment  of  the  Bench  comprising  His  Lordship  and  Hon'ble  Mr.  Justice A.K. Sikri.

Leave granted.

The appeal is allowed in terms of the signed judgment.

 (Usha Bhardwaj)          (M.S. Negi)     (A.R.-cum-P.S.)                     Assistant Registrar

      [Signed reportable judgment is placed on the file ]