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IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7019 OF 2005

BHARAT ALUMINIUM COMPANY ...  APPELLANT (S)

VERSUS

KAISER ALUMINIUM TECHNICAL SERVICES INC.           ... RESPONDENT (S)

WITH  

CIVIL APPEAL NO. 3678 OF 2007

J  U  D  G  M  E  N  T

KURIAN, J.:

1. The residue of the Constitution Bench Judgment in Bharat

Aluminium  Company v.  Kaiser  Aluminium  Technical

Services Inc.1 is the subject matter of the present appeal. At

1 (2012) 9 SCC 552.

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the  instance  of  the  appellant,  the  Bench  resolved  the

conflicting, if not, confusing views on the applicability of Part I

of Arbitration and Conciliation Act, 1996 (hereinafter referred to

as ‘Arbitration Act’) and held that “… Part I of the Arbitration

Act is applicable only to all  the arbitrations which take place

within the territory of  India”,  overruling a three-Judge Bench

decision of this Court in Bhatia International v. Bulk Trading

S.A. and another2. Exercising its the power under Article 142

of the Constitution of India,  the Constitution Bench however,

held  that  the  law  declared  by  it  would  only  operate

prospectively. In other words, all agreements executed prior to

06.09.2012  were  to  be  governed  by  the  decision  in  Bhatia

International (supra).  

2. In Bhatia International (supra), it was held that even in

cases of international commercial arbitrations held out of India,

provisions of Part I would apply unless the parties by agreement

express  or  implied,  excluded  all  or  any  of  its  provisions.  To

quote paragraph-32:

“32. To conclude, we hold that the provisions of Part  I  would  apply  to  all  arbitrations  and  to  all proceedings  relating  thereto.  Where  such arbitration is held in India the provisions of Part I

2 (2002) 4 SCC 105.

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would compulsorily apply and parties are free to deviate  only  to  the  extent  permitted  by  the derogable  provisions  of  Part  I.  In  cases  of international  commercial  arbitrations  held  out  of India provisions of Part  I  would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case the laws or rules  chosen  by  the  parties  would  prevail.  Any provision, in Part I, which is contrary to or excluded by that law or rules will not apply.”   

3.  Therefore, the simple question before us is whether the

parties by agreement, express or implied, have excluded wholly

or partly, Part I of the Arbitration Act.  

4. The  bare  necessary  facts  of  the  case  are  that  an

agreement  dated  22.04.1993  was  executed  between  the

appellant  and  the  respondent  with  relation  to  supply  of

equipment,  and  modernization  and  up-gradation  of  the

production facilities of the appellant at Korba in the state of

Chhattisgarh. Certain disputes arose between the parties and

the  same  were  referred  to  arbitration.  The  arbitration

proceedings  were  held  in  England  and  the  arbitral  tribunal

made two awards in favour of the respondent dated 10.11.2002

and 12.11.2002. The appellant filed applications, under Section

34  of  the  Arbitration  Act  before  the  District  Judge,  Bilaspur,

which were dismissed. Aggrieved, the appellant filed appeals

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before  the  High  Court  of  Chhattisgarh.  The  High  Court

dismissed the appeals.  

5. Party autonomy being the brooding and guiding spirit in

arbitration, the parties are free to agree on application of three

different laws governing their entire contract – (1) proper law of

contract, (2) proper law of arbitration agreement and (3) proper

law of the conduct of arbitration, which is popularly and in legal

parlance known as curial law.  The interplay and application of

these  different  laws  to  an  arbitration  has  been  succinctly

explained  by  this  Court  in  Sumitomo  Heavy  Industries

Limited v.  ONGC Limited and others3, which is one of the

earliest  decisions  in  that  direction  and  which  has  been

consistently followed in all the subsequent decisions including

the  recent  Reliance  Industries  Limited  and  another v.

Union of India4.  

6. In  order  to  ascertain  the  applicable  laws,  we  have  to

certainly  refer  to  the  relevant  clauses  of  the  arbitration

agreement,  viz.,  Article  17  and  Article  22,  which  read  as

follows:  

3 (1998) 1 SCC 305. 4 (2014) 7 SCC 603.

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“Article 17 - ARBITRATION

17.1: Any  dispute  or  claim  arising  out  of  or relating  to  this  agreement  shall  be  in  the  first instance  endeavour  to  be  settled  amicably  by negotiation between the parties hereto and failing which  the  same  will  be  settled  by  arbitration pursuant  to  the  English  Arbitration  Law  and subsequent amendment thereto. Article 17.2: The arbitration proceedings shall be carried by two arbitrators,  one appointed by the Petitioner  and  one by  Respondent  chosen freely and without any bias. The Court of arbitration shall be  wholly  in  London,  England and shall  use  the English language in the proceedings. The finding and award of the Court of Arbitration shall be final and binding.  Article  17.3: Before  entering  upon  the arbitration,  the  two  Arbitrators  shall  appoint  an Umpire. If the two arbitrators are not able to reach an agreement on the selection of an Umpire, the Umpire  shall  be  nominated  by  the  International Chamber of Paris.  Article 22: GOVERNING LAW This agreement will be governed by the prevailing law of India and in case of Arbitration, the English Law shall apply.”

7.   In order to coherently analyse the situation, we shall first

see  the  proper  law  of  contract,  the  law  governing  the

arbitration  agreement  and  finally  the  law  governing  the

procedure.  Article 22 of the Arbitration Agreement leaves no

room for any doubt, and it has also not been disputed, that the

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proper law of contract is  Indian law. Therefore,  crossing that

gate,  we  shall  now  proceed  to  the  door  on  the  Arbitration

Agreement.  

8. Article  17  is  solely  on  arbitration.  Article  17.1  clearly

stipulates that the disputes or claims arising out of or relating

to the agreements, if not amicably settled by negotiation, will

be settled by the arbitration pursuant to the English Arbitration

Law  and  subsequent  amendments  thereto.  The  expression

“pursuant to”, according to Concise Oxford English Dictionary

means  “in  accordance  with”.  The  New  Oxford  Dictionary  of

English has also given the same meaning to the expression.

Words and Phrases, Permanent Edition, Volume 35A, explains

the  expression  as  “in  conformity  with”.  “The  expressions

“pursuant  to  or  in  pursuance  of”  have  a  restrictive

interpretation  and  have  been  regarded  as  equivalent  to  “in

conformity with”, and imply that what is done is in accordance

with  an  instruction  or  direction”.5 In  Aircraft  Employees’

Housing Cooperative Society Limited v. Secretary, Rural

Development  and  Panchayat  Raj,  Government  of

Karnataka, Bangalore and others6, though in the context of 5 Words and Phrases, Permanent Edition, Volume 35A, page 337, citing  Fabianich v. Hart, D. C. Mun App., 31A.2d 881, 883. 6 (1996) 11 SCC 475

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the pre-amended Land Acquisition Act, this court has dealt with

the meaning of the expression “in pursuance of”.  It has been

held –

“4…..“In  pursuance  of”  would  mean  under  the authority  of  or  by  virtue  of  or  in  the  course  of carrying  out  in  accordance  with  the  scheme  or plan  or  direction  or  order  or  anything  in consequence or  conformable  to  or  according  to; act  of  pursuing,  carrying  out  and  performance, prosecution.”

Therefore,  it  is  clear  that  the  parties  have  agreed  in

expressed terms that the law of arbitration would be English

Arbitration Law.

9. Article 22 has in fact two parts. In the first part of that

Article, it is agreed between the parties that the proper law of

the contract will be governed by the prevailing law of India, and

in the case of  arbitration,  English  Law would apply.  In  other

words, the agreement as a whole would be governed by Indian

Law, and in case of arbitration, the English Law will apply. No

doubt,  one  should  not  strain  too  much  to  interpret  an

agreement between two parties as in the case of a statutory

interpretation.  The  approach  in  analysing  the  terms  of

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agreement should be straight and plain but at the same time

cohesive and logical.

10. In  the  matter  of  interpretation,  the  court  has  to  make

different approaches depending upon the instrument falling for

interpretation.  Legislative drafting is  made by experts and is

subjected to scrutiny at  different stages before it  takes final

shape of an Act, Rule or Regulation. There is another category

of  drafting  by  lawmen  or  document  writers  who  are

professionally qualified and experienced in the field like drafting

deeds, treaties, settlements in court, etc. And then there is the

third  category  of  documents  made by  laymen who have  no

knowledge of law or expertise in the field. The legal quality or

perfection of the document is  comparatively low in the third

category, high in second and higher in first. No doubt, in the

process  of  interpretation  in  the  first  category,  the  courts  do

make an attempt to gather the purpose of the legislation, its

context and text. In the second category also, the text as well

as the purpose is certainly important, and in the third category

of  documents  like  wills,  it  is  simply  intention  alone  of  the

executor  that  is  relevant.  In  the  case  before  us,  being  a

contract executed between the two parties,  the court cannot

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adopt an approach for interpreting a statute. The terms of the

contract  will  have  to  be  understood  in  the  way  the  parties

wanted and intended them to be. In that context, particularly in

agreements  of  arbitration,  where  party  autonomy  is  the

grundnorm, how the parties worked out the agreement, is one

of the indicators to decipher the intention, apart from the plain

or grammatical meaning of the expressions and the use of the

expressions  at  the  proper  places  in  the  agreement.

Contextually,  it  may  be noted that  in  the  present  case,  the

respondent had invoked the provisions of English law for the

purpose of the initiation of the unsettled disputes. It has hence,

while interpreting an agreement, to be kept in mind that the

parties,  intended  to  avoid  impracticable  and  inconvenient

processes and procedures in working out the agreement. Potter

J. made a similar observation in Cargill International S.A. v.

Bangladesh Sugar and Food Industries Corporation7:

“As Lord Goff observed in another context in Palm Shipping v. Kuwait Petroleum [1988] 1 Lloyds Rep 500  at  502:  “It  is  not  a  permissible  method  of construction  to  propound a  general  or  generally accepted principal ... (and) ... then to seek to force the provisions of the ... (the contract) ... into the straightjacket  of  that  principle.”  On  the  other hand,  modern  principles  of  construction  require

7 [1998] 1 W.L.R. 461 CA.

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the  court  to  have  regard  to  the  commercial background, the context of the contract and the circumstances  of  the  parties  and  to  consider whether,  against  that  background  and  in  that context, to give the words a particular or restricted meaning  would  lead  to  an  apparently unreasonable and unfair result.”

11. A close perusal of the terms between the parties would

clearly  show  that  the  first  part  of  Article  22  is  on  the  law

governing  the  contract  and  in  the  second  part  the  parties

intended  to  lay  down  the  law  applicable  to  the  arbitration

agreement, viz., the proper law of the agreement of arbitration.

It is unnecessary that after already agreeing on the procedural

law  governing  the  arbitration  in  Article  17.1,  the  parties

intended to state the same again in a separate clause within

the same contract in Article 22. Therefore, the intention of the

parties to apply English Law to the arbitration agreement also

and not limit it to the conduct of the arbitration is fairly clear

from Article 22.

12. Sumitomo (supra)  is  of  no  avail  to  the  appellant.  In

Sumitomo (supra), there was no specific choice on the law of

arbitration agreement and this court held that in absence of

such  choice,  the  law  of  arbitration  agreement  would  be

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determined by the substantive law of the contract. That is not

the case in this agreement.  

13. It is clear that the law applicable to arbitration agreement

in the present case is English Law. Once it is found that the law

governing the arbitration agreement is English Law, Part I of the

Indian Arbitration Act stands impliedly excluded. This has been

a long settled position and the latest judgment in  Union of

India  v. Reliance Industries Limited and others8 reaffirms

the same. In the words of R.F. Nariman J.,

“20.  The  last  paragraph  of  Bharat  Aluminium's judgment has now to be read with two caveats, both emanating from paragraph 32 of  Bhatia  International itself-that  where  the  Court  comes to  a  determination that  the  juridical  seat  is  outside  India  or  where  law other  than  Indian  law  governs  the  arbitration agreement, Part-I of the Arbitration Act, 1996 would be excluded by necessary implication. Therefore, even in the cases governed by the Bhatia principle,  it  is only those cases in which agreements stipulate that the seat of  the  arbitration  is  in  India  or  on  whose  facts  a judgment  cannot  be  reached  on  the  seat  of  the arbitration as being outside India that would continue to be  governed  by  the  Bhatia  principle.  Also,  it  is  only those  agreements  which  stipulate  or  can  be  read  to stipulate  that  the  law  governing  the  arbitration agreement  is  Indian  law which  would  continue to  be governed by the Bhatia rule.”

8 2015 (10) SCALE 149.

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14. We are hence unable to be persuaded by the persuasive

argument advanced by Shri Sundaram, learned Senior Counsel

appearing for the appellant that the arbitration agreement is to

be governed by the Indian Law.  

15. Accordingly, we find no error in the view taken by the High

Court that the applications filed by the appellant under Section

34  of  the  Indian  Act  are  not  maintainable  against  the  two

foreign awards dated 10.11.2002 and 12.11.2002 between the

appellant and the respondent.  

16. The appeals are accordingly dismissed. There shall be no

order as to costs.

.......................J.            (Anil R. Dave)

......................J.         (Kurian Joseph)

......................J.          (Amitava Roy)

New Delhi; January 28, 2016

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