Page 1

REPORTABLE   IN THE SUPREME COURT OF INDIA   CIVIL APPELLATE JURISDICTION

  CIVIL     APPEAL     NO.7019     OF     2005   

Bharat Aluminium Co.                                      ...Appellant  

VERSUS

Kaiser Aluminium Technical Service, Inc.     ...Respondent

WITH

CIVIL     APPEAL     NO.6284     OF     2004   

M/s. White Industries Australia Ltd.   

...Appellant  

VERSUS

Coal India Ltd.                                              ...Respondent WITH

CIVIL     APPEAL     NO.3678     OF     2007   

Bharat Aluminium Co. Ltd.                               ...Appellant  

VERSUS

Kaiser Aluminium Technical Service, Inc.     ...Respondent

-  - 1

Page 2

WITH TRANSFERRED     CASE     (C)     NO.35     OF     2007   

Harkirat Singh                                                 ...Petitioner  

VERSUS

Rabobank International Holding B.V.             ...Respondent

WITH

SPECIAL     LEAVE     PETITION     (C)     NOS.     3589-3590     of     2009   

Tamil Nadu Electricity Board   ...Petitioner

VERSUS

M/s. Videocon Power Limited & Anr.           ...Respondents

WITH

SPECIAL     LEAVE     PETITON     (C)     NOS.     31526-31528     of     2009   

Tamil Nadu Electricity Board   ...Petitioner

VERSUS

-  - 2

Page 3

M/s. Videocon Power Ltd. & Anr.                 ...Respondents WITH

SPECIAL     LEAVE     PETITON     (C)     NO.     27824     of     2011   

Bharati Shipyard Ltd.               

...Petitioner

VERSUS

Ferrostaal AG & Anr.                                    ...Respondents

WITH

SPECIAL     LEAVE     PETITION     (C)     NO.     27841     of     2011   

Bharati Shipyard Ltd.               

...Petitioner

VERSUS

Ferrostaal AG & Anr.                                    ...Respondents

 J     U     D     G     M     E     N     T   

SURINDER     SINGH     NIJJAR,     J.   

1. Whilst hearing C.A. No. 7019 of 2005, a two Judge Bench of  

this Court, on 16th January, 2008, passed the following order:-

“In the midst of hearing of these appeals, learned  counsel for the appellant has referred to the three- Judges Bench decision of this Court in Bhatia  International Vs. Bulk Trading S.A. & Anr., (2002) 4  

-  - 3

Page 4

SCC 105. The said decision was followed in a recent  decision of two Judges Bench in Venture Global  Engineering Vs. Satyam Computer Services Ltd. &  Anr. 2008 (1) Scale 214. My learned brother Hon'ble  Mr. Justice Markandey Katju has reservation on the  correctness of the said decisions in view of the  interpretation of Clause (2) of Section 2 of the  Arbitration and Conciliation Act, 1996. My view is  otherwise.

Place these appeals before Hon'ble CJI for listing  them before any other Bench.”

2. Pursuant to the aforesaid order, the appeal was placed for  

hearing before a three Judge Bench, which by its order dated  

1st November, 2011 directed the matters to be placed before  

the Constitution Bench on 10th January, 2012.

3. Since the issue raised in the reference is pristinely legal, it  

is not necessary to make any detailed reference to the facts of  

the appeal. We may, however, notice the very essential facts  

leading to the filing of the appeal. An agreement dated  

22nd April, 1993 was executed between the appellant and the  

respondent, under which the respondent was to supply and  

install a computer based system for Shelter Modernization at  

Balco’s Korba Shelter. The agreement contained an arbitration  

clause for resolution of disputes arising out of the contract.  

The arbitration clause contained in Articles 17 and 22 was as  

under :

-  - 4

Page 5

“Article 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 amendments thereto.  Article 17.2 –  The arbitration proceedings shall be  carried out by two Arbitrators one appointed by  BALCO and one by KATSI chosen freely and without  any bias. The court of Arbitration shall be held  wholly in London, England and shall use English  language in the proceeding. The findings and award  of the Court of Arbitration shall be final and binding  upon the parties.  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.”  

4.  The aforesaid clause itself indicates that by reason of the  

agreement between the parties, the governing law of the  

agreement was the prevailing law of India. However, the  

settlement procedure for adjudication of rights or obligations  

under the agreement was by way of arbitration in London and  

the English Arbitration Law was made applicable  

to such proceedings. Therefore, the lex fori for the arbitration is  

English Law but the substantive law will be Indian Law.  

5. Disputes arose between the parties with regard to the  

performance of the agreement. Claim was made by the  

appellant for return of its investment in the modernization  

programme, loss, profits and other sums. The respondent  

-  - 5

Page 6

made a claim for unclaimed instalments plus interest and  

damages for breach of intellectual property rights. Negotiations  

to reach a settlement of the disputes between the parties were  

unsuccessful and a written notice of request for arbitration  

was issued by the respondent to the appellant by a notice  

dated 13th November, 1997. The disputes were duly referred to  

arbitration which was held in England. The arbitral tribunal  

made two awards dated 10th November, 2002 and 12th  

November, 2002 in England. The appellant thereafter filed  

applications under Section 34 of the Arbitration Act, 1996 for  

setting aside the aforesaid two awards in the Court of the  

learned District Judge, Bilaspur which were numbered as MJC  

Nos. 92 of 2003 and 14 of 2003, respectively. By an order  

dated 20th July, 2004, the learned District Judge, Bilaspur  

held that the applications filed by the appellant under   Section  

34 of the Arbitration and Conciliation Act, 1996 (hereinafter  

referred to as the ‘Arbitration Act, 1996’) for setting aside the  

foreign awards are not tenable and accordingly dismissed the  

same.

6. Aggrieved by the aforesaid judgment, the appellant filed two  

miscellaneous appeals being Misc. Appeal Nos. 889         of  

2004 and Misc. Appeal No.890 of 2004 in the High Court of  

-  - 6

Page 7

Judicature at Chattisgarh, Bilaspur. By an order dated 10th  

August, 2005, a Division Bench of the High Court dismissed  

the appeal. It was held as follows:

“For the aforesaid reasons, we hold 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 and accordingly dismiss Misc. Appeal  No.889 of 2004 and Misc. Appeal No.890 of 2004,  but order that the parties shall bear their own  costs.”

The aforesaid decision has been challenged in this appeal.

7. We may also notice that number of other appeals and  

special leave petitions as well as transferred case were  

listed alongwith this appeal. It is not necessary to take  

note of the facts in all matters.

8. We may, however, briefly notice the facts in Bharati  

Shipyard Ltd. Vs. Ferrostaal AG & Anr. in SLP (C) No.27824  

of 2011 as it pertains to the applicability of Section 9 of the  

Arbitration Act, 1996. In this case, the appellant, an Indian  

Company, entered into two Shipbuilding Contracts with  

respondent No.1 on 16th February, 2007. The appellant was to  

construct vessels having Builders Hull No.379 which was to be  

completed and delivered by the appellant to the respondent  

No.1 within the time prescribed under the two Shipbuilding  

-  - 7

Page 8

Contracts. The agreement contained an arbitration clause. The  

parties initially agreed to get their disputes settled through  

arbitral process under the Rules of Arbitration of the  

International Chamber of Commerce (ICC) at Paris,  

subsequently, mutually agreed on 29th November, 2010 to  

arbitration under the Rules of London Maritime Arbitrators  

Association (LMAA) in London. This agreement is said to have  

been reached between the parties in the interest of saving costs  

and time. Prior to agreement dated 29th November, 2010  

relating to arbitration under LMAA Rules, respondent No.1 had  

filed two requests for arbitration in relation to both the  

contracts under Article 4 of ICC Rules on 12th November, 2010  

recognizing that the seat of arbitration is in Paris and the  

substantive law applicable is English Law. In its requests for  

arbitration, respondent No.1 had pleaded in paragraphs 25  

and 26 as under:

“Applicable Law:  25. The Contract Clause “Governing Law, Dispute  and Arbitration Miscellaneous”  provides that the  Contract shall be governed by the Laws of England.”  The rights and obligations of the parties are  therefore to be interpreted in light of English Law  (the applicable law). 26. In summary: a) disputes arising out of the Contract between the  parties are to be resolved by arbitration under the  ICC Rules;   

-  - 8

Page 9

b) the seat of arbitration is Paris; and  c) the substantive law to be applied in the  arbitration  shall be English Law.”   

9. Subsequently, in view of the agreement dated 29th  

November, 2010, the first respondent submitted two requests  

for arbitration under LMAA Rules in London on 4th February,  

2011. During the pendency of the aforesaid two requests, on  

10th November, 2010, the first respondent filed two  

applications under Section 9 of the Arbitration Act, 1996 which  

are numbered as AA.No.6/2010 and AA.No.7/2010 seeking  

orders of injunction against the encashment of refund bank  

guarantees issued under the contracts.  

10. Learned District Judge, Dakshina Kannada,  

Mangalore granted an ex parte ad interim injunction in both  

the applications restraining the appellant from encashing the  

bank guarantee on 16th November, 2010. The appellant  

appeared and filed its statement of objections. After hearing,  

the learned District Judge passed the judgments and orders on  

14th January, 2011 allowing the applications filed by  

respondent No.1 under Section 9 of the Arbitration Act, 1996.  

11. Both the orders were challenged in the appeals by  

the appellant before the High Court of Karnataka at Bangalore.  

-  - 9

Page 10

By judgment and order dated 9th September, 2011, the High  

Court allowed the appeal and set aside the orders passed by  

the District Judge dated 14th January, 2011. In allowing the  

appeal, the High Court held as follows:

“From the above, it is clear that respondent No.1 is  not remedyless (sic). It is already before the Arbitral  Tribunal at London. Thus, it is open for it to seek  interim order of injunction for the purpose of  preserving the assets as per Section 44 of the  Arbitration Act, 1996 in Courts at London.  Since the parties have agreed that substantive law  governing the contract is English Law and as the law  governing arbitration agreement is English Law, it is  open for respondent No.1 to approach the Courts at  England to seek the interim relief.”  

12. This special leave petition was filed against the  

aforesaid judgment of the High Court.                

13. We have heard very lengthy submissions on all  

aspects of the matter. All the learned counsel on both sides  

have made elaborate references to the commentaries of various  

experts in the field of International Commercial Arbitration.  

Reference has also been made to numerous decisions of this  

Court as well as the Courts in other jurisdictions.   

14. Mr. C.A. Sundaram, appearing for the appellants in  

C.A. No. 7019 of 2005 submits that primarily the following five  

questions would arise in these cases:- (a)  What is meant by  

-  - 10

Page 11

the place of arbitration as found in Sections 2(2) and 20 of the  

Arbitration Act, 1996?; (b) What is the meaning of the words  

“under the law of which the award is passed” under Section 48  

of the Arbitration Act, 1996 and Article V(1)(e) of the  

Convention on the Recognition and Enforcement of Foreign  

Arbitral Awards (hereinafter referred to as “the New York  

Convention”)?; (c) Does Section 2(2) bar the application of Part  

I of the Arbitration Act, 1996 (Part I for brevity) to arbitrations  

where the place is outside India?; (d) Does Part I apply at all  

stages of an arbitration, i.e., pre, during and post stages of the  

arbitral proceedings, in respect of all arbitrations, except for  

the areas specifically falling under Parts II and III of the  

Arbitration Act, 1996 (Part II and Part III hereinafter)?; and  

(e) Whether a suit for preservation of assets pending an  

arbitration proceeding is maintainable?

15. Mr. Soli Sorabjee, Mr. Sundaram, Mr. Gopal  

Subramanium and Dr. A.M. Singhvi, learned Senior Advocates  

for the appellants have in unison emphasised that Part I and  

Part II are not mutually exclusive.  They have submitted that  

the Arbitration Act, 1996 has not “adopted or incorporated the  

provisions of Model Law”.  It has merely “taken into account”  

-  - 11

Page 12

the Model Law. They have made a reference to the judgments  

of this Court in the case of Konkan     Railway     Corporation     Ltd.    

&     Anr.   Vs. Rani     Construction     Pvt.     Ltd.  1   and SBP     &     Co.   Vs.  

Patel     Engineering     Ltd.     &     Anr.  2    It is emphasised that in fact  

the Arbitration Act, 1996 differs from the UNCITRAL Model  

Law on certain vital aspects.  It is pointed out that one of the  

strongest examples is the omission of the word “only”  in  

Section 2(2), which occurs in corresponding Article 1(2) of the  

Model Law.  The absence of the word “only”  in Section 2(2)  

clearly signifies that Part I shall compulsorily apply if the place  

of arbitration is in India. It does not mean that Part I will not  

apply if place of arbitration is not in India.

16. Mr. Sorabjee has emphasised that the omission of  

word “only”  in Section 2(2) is not an instance of “CASUS  

OMISSUS”.  The omission of the word clearly indicates that  

Model Law has not been bodily adopted by the Arbitration Act,  

1996.  All the learned senior counsel seem to be agreed that  

the Arbitration Act, 1996 has to be construed by discerning the  

intention of the Parliament from the words and language used,  

i.e., the provisions of the said Act have to be construed literally  

without the addition of any word to any provision.  Therefore,  

1  (2002) 2 SCC 388

2  (2005) 8 SCC 618

-  - 12

Page 13

the missing word “only”  can not be supplied by judicial  

interpretation.  In support of the submission, reliance is placed  

on Nalinakhya     Bysack   Vs. Shyam     Sunder     Haldar     &     Ors.  3  ,  

Magor     &     St.     Mellons     RDC   Vs. Newport     Corporation  4  , Punjab  

Land     Devl.     &     Reclamation     Corporation     Ltd.   Vs. Presiding  

Officer,     Labour     Court  5   and Duport     Steels     Ltd.   Vs. Sirs  6  .   It is  

pointed out by Mr. Sorabjee that the doctrine of ironing out the  

creases does not justify the substitution of a new jacket in  

place of the old, whose creases were to be ironed out.  

 17. All the learned counsel for the appellants have  

emphasised that the Arbitration Act, 1996 has not adopted the  

territorial criterion/principle completely, party autonomy has  

been duly recognized.  This, according to the learned counsel,  

is evident from the provisions in Sections 2(1)(e), 2(5), 2(7), 20  

and 28.  It is submitted that restricting the operation of Part I  

only to arbitration which takes place in India would lead to  

reading words into or adding words to various provisions  

contained in the Arbitration Act, 1996.  It is emphasised that  

restricting the applicability of Part I to arbitrations which take  

3  1953 SCR 533

4  1951 (2) All ER 839

5  (1990) 3 SCC 682

6  (1980) 1 All ER 529

-  - 13

Page 14

place only in India would render the provisions in  

Sections 2(5), 2(7) and 20 redundant. Mr. Sundaram has  

reiterated that expression “place”  in Sections 2(2) and  

Section 20 has to be given the same meaning. Section 20 of the  

Arbitration Act, 1996 stipulates that parties are free to agree  

on the place of arbitration outside India.  Therefore,  

arbitrations conducted under Part I, may have geographical  

location outside India.  Similarly, if Part I was to apply only  

where the place of arbitration is in India then the words  

“Where the place of arbitration is situated in India” in Section  

28(1) were wholly unnecessary.  Further, the above words  

qualify only Sub-section (1) of Section 28 and do not qualify  

Sub-section (3).   The necessary implication is that Sub-section  

(3) was intended to apply even to foreign-seated arbitration so  

long as parties have chosen Arbitration Act, 1996 as law of the  

arbitration, which could only be if Part I is to apply to such  

arbitration.   Therefore, it is submitted by the learned counsel  

that the ‘seat’  is not the “centre of gravity”  as far as the  

Arbitration Act, 1996 is concerned.  The Arbitration Act, 1996  

is “subject matter centric”  and not “seat-centric”. In support of  

this, the learned counsel placed strong reliance on the  

provision contained in Section 2(1) (e), which provides that  

-  - 14

Page 15

“jurisdiction to decide the questions forming the subject-matter of  

the arbitration if the same had been the subject matter of a suit”.  

This, according to the learned counsel, is an essential  

precondition for a Court to assume jurisdiction under Part I.  

The definition of Court in Section 2(1)(e) would necessarily  

mean that two foreign parties, in order to resolve a dispute  

arising outside India and governed by foreign law cannot  

invoke jurisdiction of an Indian Court by simply choosing India  

as the seat of arbitration. It is further submitted that in the  

absence of Section 9 of the Arbitration Act, 1996, no interim  

relief can be granted unless it is in aid of final/ substantive  

relief that must be claimed in the suit. On the other hand, a  

suit claiming any permanent relief on the substance of the  

dispute would tantamount to a waiver of the arbitration clause  

by the plaintiff. It is, therefore, submitted by the learned  

counsel that supplying word “only” in Section 2(2) will in many  

cases leave a party remediless. It is further submitted that  

Section 2(7) clearly shows that part I would apply even to  

arbitrations which take place outside India. If Section 2(7) was  

to be restricted only to arbitrations which take place in India,  

there would be no need for such a provision. It is emphasised  

that the provision clearly states that it applies to an award  

-  - 15

Page 16

made “under this part”. The aforesaid term is a clear indication  

to an arbitration which takes place outside India, where the  

parties have chosen the Arbitration Act, 1996 as the governing  

law of the arbitration. Mr. Sorabjee relied on National  

Thermal     Power     Corporation   Vs. Singer     Company     &     Ors.  7  ,    

and submitted that Section 2(7) is a positive re-enactment of  

Section 9(b) of the Foreign Awards (Recognition and  

Enforcement) Act, 1961 (hereinafter referred to as the ‘1961  

Act’). It is emphasised that Section 2(7) has been placed in Part  

I only to bring it in conformity with Article V(1)(e) of the New  

York Convention, which has been incorporated and enacted as  

Section 48(1)(e). The aforesaid section even though it is dealing  

with enforcement of awards, necessarily recognizes the  

jurisdiction of courts in two countries to set aside the award,  

namely, the courts of the country in which arbitration takes  

place and the country under the law of which the award was  

made.  It is submitted that both the expressions must  

necessarily be given effect to and no part of the act or the  

section can be disregarded by describing them as fossil.  

18. Mr. Sorabjee has emphasised that not giving effect  

to the words “under the law of which the award was made”,  

will allow many awards to go untested in Court. He has relied  

7  (1992) 3 SCC 551

-  - 16

Page 17

upon certain observations made by the U.K. Court in the case  

of Reliance     Industries     Ltd.   Vs. Enron     Oil     &     Gas     India     Ltd.  8    

19. Mr. Sundaram points out that the Arbitration Act,  

1996 departs from the strict territorial criterion/principle as  

not only it retains the features of New York Convention but  

significantly departs from Model Law. The Model Law has  

sought to bring in an era of localized/territorial arbitration  

(Article 1(2)). On the other hand, the Arbitration Act, 1996  

recognizes and provides for de-localized arbitration. He  

emphasised that under Model Law, all provisions referred to  

localized arbitration except the exceptions in Article 1(2). Under  

the Arbitration Act, 1996, all provisions are de-localized, except  

where “place” qualification has been provided for.  

20.  He further submitted that in all commentaries of  

International Commercial Arbitration, the expression “place” is  

used interchangeably with “seat”. In many cases, the terms  

used are “place of arbitration”; “the arbitral situs”; the “locus  

arbitri” or “the arbitral forum”. Relying on the judgment in Braes  

of     Doune     Wind     Farm     (Scotland)     Limited   Vs. Alfred  

McAlpine     Business     Services     Limited  9   which has been  

8  2002 (1) Lloyd Law Reports 645

9  [2008]EWHC 426 (TCC)

-  - 17

Page 18

affirmed in Shashoua     &     Ors  . Vs.   Sharma  10  ,   he submitted that  

internationally “seat” is interpreted as being the “juridical  

seat”. Therefore, when the parties opt for a given law to govern  

the arbitration, it is considered to supplant the law of the  

geographical location of the arbitration. Therefore, the mere  

geographical location is not the deciding factor of the seat. He  

relies on the observations made by Gary B. Born in his book  

‘International Commercial Arbitration’, which are as follows :

“A concept of central importance to the international  arbitral process is that of the arbitral seat  (alternatively referred to as the “place of arbitration”,  the “siege”  “ort”, the arbitral “situs”  the “locus  arbitri”  or the arbitral “forum”). The arbitral seat is  the nation where an international arbitration has its  legal domicile, the laws of which generally govern  the arbitration proceedings in significant respects,  with regard to both “internal”  and “external”  procedural matters.”

As discussed elsewhere, the arbitral seat is the  location selected by the parties (or, sometimes, by  the arbitrators, an arbitral institution, or a court) as  the legal or juridical home or place of the  arbitration. In one commentator’s words, the “seat”  is in the vast majority of cases the country chosen  as the place of the arbitration. The choice of the  arbitral seat can be (and usually is) made by the  parties in their arbitration agreement or selected on  the parties’  behalf by either the arbitral tribunal or  an arbitral institution.”    

21. He submits that whist interpreting the word “place”  

in Section 2(2), the provisions contained in Section 20 would  

10  [2009] EWHC 957 (Comm.).

-  - 18

Page 19

have relevance as Section 20 stipulates that the parties are  

free to agree on the place of arbitration. The interpretation on  

the word “place”  in Section 2(2) would also have to be in  

conformity with the provisions contained in Section 2(1) (e).  

Further more, Section 2(2) has to be construed by keeping in  

view the provisions contained in Section 2(7) which would  

clearly indicate that the provisions of Part I of the Arbitration  

Act, 1996 are not confined to arbitrations which take place  

within India. Whilst arbitration which takes place in India by  

virtue of Section 2(2) would give rise to a “domestic award”; the  

arbitration which is held abroad by virtue of Section 2(7) would  

give rise to a “deemed domestic award”; provided the parties to  

arbitration have chosen the Arbitration Act, 1996 as the  

governing law of arbitration.  

22. Mr. Sundaram emphasised that if Section 2(2) had  

not been on the Statute book there would be no doubt that if  

an arbitration was governed by the Arbitration Act, 1996, Part  

I would ipso facto become applicable to such arbitration, and  

under Section 2(7), irrespective of where the arbitral  

proceedings took place, it would become a deemed domestic  

award, giving rise to the incidence arising therefrom. By the  

inclusion of Section 2(2), the legislature has also made the  

-  - 19

Page 20

Arbitration Act, 1996 and Part I applicable when the seat or  

place of arbitration is in India even if not conducted in  

accordance with Indian Arbitral laws thereby domestic what  

would otherwise have been a non-domestic award having been  

conducted in accordance with a Foreign Arbitration Act. By  

making such provisions, the Indian Parliament has honoured  

the commitment under the New York Convention. He submits  

that New York Convention in Articles V(1)(a) and V(1)(e) has  

recognized that the courts in both the countries i.e. country in  

which the arbitration is held and the country “under the law of  

which the award is made” as a court of competent jurisdiction  

to question the validity of the arbitral proceedings/award. He,  

however, points out that the jurisdiction of the domestic court  

is neither conferred by the New York Convention nor under  

Part II of the Arbitration Act, 1996, since Part II merely deals  

with circumstances under which an award may be  

enforced/may be refused to be enforced. These circumstances  

include annulment proceedings in one of the two competent  

courts, whether or not any of the two courts have jurisdiction  

to annul the proceedings/award, would depend on the  

domestic law of the country concerned. The Geneva  

Convention had brought with it the predominance of the seat,  

-  - 20

Page 21

particularly with reference to the setting aside of the award.  

The two jurisdictions were inserted in the New York Convention  

to dilute the predominance of the “seat”  over the party  

autonomy. He further submitted that the apprehension that  

the two courts of competent jurisdiction could give conflicting  

verdicts on the same award is unfounded. Even if there were  

parallel proceedings, it would merely be a question of case  

management by the relevant courts in deciding which  

proceedings should be continued and which stayed.                 

23. Learned counsel have submitted that the findings in  

the case of Bhatia     International   Vs. Bulk     Trading     S.A.     &    

Anr.11 (hereinafter referred to as “Bhatia International”) that if  

Part I was not made applicable to arbitrations conducted  

outside India would render “party remediless” is wholly correct.  

It is not open to a party to file a suit touching on the merits of  

the arbitration, since such suit would necessarily have to be  

stayed in view of Section 8 or Section 45 of the Arbitration Act,  

1996.  He submits that the only way a suit can be framed is a  

suit “to inter alia restrict the defendant from parting with  

properties”.  He submits that if the right to such property itself  

is subject matter of an arbitration agreement, a suit for the  

declaration of such right can not be filed.  All that could then  

11  (2004) 2 SCC 105

-  - 21

Page 22

be filed, therefore, would be a bare suit for injunction  

restraining another party from parting with property.  The  

interlocutory relief would also be identical till such time as the  

injunction is made permanent.  Such a suit would not be  

maintainable because :- (a) an interlocutory injunction can  

only be granted depending on the institutional progress of  

some proceeding for substantial relief, the injunction itself  

must be part of the substantive relief to which the plaintiff’s  

cause of action entitles him.  In support of this proposition, he  

relies on Siskina     (Cargo     Owners)   Vs. Distos     Compania    

Navieria     SA  12  ,   Fourie Vs. Le     Roux  13   and Adhunik     Steels     Ltd.    

Vs. Orissa     Manganese     and     Minerals     Pvt.     Ltd.  14  ;  (b) the  

cause of action for any suit must entitle a party for a  

substantive relief.  Since the substantive relief can not be  

asked for as the dispute is to be decided by the arbitrator, the  

only relief that could be asked for would be to safeguard a  

property which the plaintiff may or may not be entitled to  

proceed against, depending entirely on the outcome of another  

proceeding, in another jurisdiction, or which the country has  

no seisin; (c) in such a suit, there would be no pre-existing  

12  1979 AC 210

13  2007 (1) WLR 320; 2007 (1) All ER 1087

14  2007 (7) SCC 125 at 136

-  - 22

Page 23

right to give rise to a cause of action but the right is only  

contingent / speculative and in the absence of an existing /  

subsisting cause of action, a suit can not be filed; (d) the  

absence of an existing / subsisting cause of action would entail  

the plaint in such a suit to be rejected under Order VII Rule  

11a.  Further, no interlocutory injunction can be granted  

unless it is in aid of a substantive relief and therefore a suit  

simply praying for an injunction would also be liable to be  

rejected under Order VII Rule 11; (e) no interim relief can be  

granted unless it is in aid of and ancillary to the main relief  

that may be available to the party on final determination of  

rights in a suit.  Learned counsel refers to State     of     Orissa   Vs.  

Madan     Gopal     Rungta  15   in support of the submission; (f) such  

a suit would be really in the nature of a suit for interim relief  

pending an entirely different proceeding.  It is settled law that  

by an interim order, the Court would not grant final relief.  The  

nature of such a suit would be to grant a final order that would  

in fact be in the nature of an interim order.  Here the learned  

counsel refers to U.P.     Junior     Doctors  ’   Action     Committee   Vs.  

Dr.     B.     Sheetal     Nandwani  16  , State     of     Uttar     Pradesh   Vs. Ram  

15  1952(1) SCR 28

16  1997 Suppl (1) SCC 680

-  - 23

Page 24

Sukhi     Devi  17  , Deoraj Vs. State     of     Maharashtra     &     Ors.  18   and  

Raja     Khan   Vs. Uttar     Pradesh     Sunni     Central     Wakf     Board     &    

Ors.  19     He submits that the intention of the Indian Parliament  

in enacting the Arbitration Act, 1996 was not to leave a party  

remediless.   

24. Mr. Gopal Subramanium submits that the issue in  

the present case is that in addition to the challenge to the  

validity of an award being made in courts where the seat is  

located, are domestic courts excluded from exercising  

supervisory control by way of entertaining a challenge to an  

award? He submits that the issue arises when it is not  

possible, in a given case, to draw an assumption that the  

validity of the award is to be judged according to the law of the  

“place”  of arbitration. The Arbitration Act, 1996 has removed  

such vagueness. The Arbitration Act, 1996 clearly states that  

in respect of all subject matters over which Courts of  

Judicature have jurisdiction, the National Courts will have  

residual jurisdiction in matters of challenge to the validity of  

an award or enforcement of an award.  He reiterates the  

submissions made by other learned senior counsel and points  

17  (2005) (9) SCC 733

18  (2004) 4 SCC 697

19  (2011) 2 SCC 741

-  - 24

Page 25

out that the Arbitration Act, 1996 is not seat centric. This,  

according to learned senior counsel, is evident from numerous  

provisions contained in Part I and Part II. He points out all the  

sections which have been noticed earlier.  According to learned  

senior counsel, the definition of International Commercial  

Arbitration in Section 2(1)(f) is party centric. This definition is  

not indexed to the seat of arbitration. Similarly, the definition  

in Section 2(1)(e) is subject matter centric. According to him,  

there is a crucial distinction between the definition of  

international arbitration in the Model Law and the definition of  

international commercial arbitration under the 1961 Act. From  

the above, he draws an inference that seat of arbitration being  

in India is not a pre-requisite to confer jurisdiction on the  

Indian Courts under the Arbitration Act, 1996. He points out  

that Section 2(1)(e) contemplates nexus with “the subject matter  

of the arbitration”. The use of this expression in the definition  

gives a clear indication of the manner in which jurisdiction is  

conferred. If an international arbitration takes place,  

irrespective of the seat, and the subject matter of that  

arbitration would otherwise be within the jurisdiction of an  

Indian Court, such Indian Court would have supervisory  

jurisdiction. Therefore, if “the closest connection”  of the  

-  - 25

Page 26

arbitration is with India, and if the Indian Courts would  

normally have jurisdiction over the dispute, the Indian Courts  

will play a supervisory role in the arbitration. Restricting the  

applicability of Part I of the Arbitration Act, 1996 to the  

arbitration where the seat is in India cannot, according to  

Mr. Subramanium, provide a coherent explanation of sub-

section 2(1)(e) without doing violence to its language. He also  

makes a reference to the opening words of Section 28 “where  

the place of arbitration is situate in India”. He then submits  

that if the legislature had already made it abundantly clear  

that Section 2(2) of the Arbitration Act, 1996 operated as a  

complete exclusion of Part I of the aforesaid Act to arbitrations  

outside India, the same proposition need not subsequently be  

stated as a qualifier in Section 28.

25. Mr. Gopal Subramanium emphasised that Part II  

cannot be a complete code as it necessarily makes use of  

provisions in Part I. He points out that Part I and Part II of the  

Arbitration Act, 1996 would have been distinct codes in  

themselves if they had provisions of conducting arbitration in  

each part. However, Part I of the Arbitration Act, 1996  

prescribed the entire procedure for the conduct of an  

arbitration, whereas Part II is only for recognition and  

-  - 26

Page 27

enforcement of certain foreign awards. Therefore, he submits  

that Part I and Part II cannot be read separately but have to be  

read harmoniously in order to make Arbitration Act, 1996 a  

complete code. He points out that even though certain  

provisions of Part I are mirrored in Part II, at the same time,  

certain provisions of Part I which are necessary for arbitration  

are not covered by Part II. He points out that although Section  

45, which is in part II, enables a court to make a reference to  

arbitration; there is no other provision like Section 11 to  

resolve a situation when an arbitrator is not being appointed  

as per the agreed arbitral procedure. Therefore, Section 11(9)  

specially provides for reference in an international commercial  

arbitration. He further points out that the use of phrase  

“notwithstanding anything contained in Part I” clearly indicates  

that Section 45 is to apply, irrespective of any simultaneous  

application of similar provision in Part I. This section clearly  

contemplates that provisions of Part I would apply to matters  

covered by Part II. Mr. Subramanium then points out that  

there is no provision in Part II for taking the assistance of the  

court for interim relief pending arbitration, like Section 9 in  

Part I. Section 27, according to Mr. Subramanium, is another  

indication where the assistance of the Indian Court would be  

-  - 27

Page 28

taken in aid of arbitration both within and outside India. He  

reiterates that Sections 34 and 48 of the Arbitration Act, 1996  

are to be read harmoniously. He submits various provisions of  

Part I are facilitative in character, excepting Section 34 which  

involves a challenge to an award. He points out that Section  

2(4) and Section 2(5) also indicate that the Arbitration Act,  

1996 applies to all arbitration agreements irrespective of the  

seat of arbitration. He submits that the harmonious way to  

read Section 34 as well as Section 48 of the Arbitration Act,  

1996 is that where a challenge lies to an award, the legislature  

must have intended only one challenge. Thus, if an attempt is  

made to execute an award as a decree of the court under  

Section 36 of Part I, there can be no doubt that if there is no  

adjudication under Section 34, there can still be a resistance  

which can be offered under Section 48. Similarly, by virtue of  

Section 48(3) if an award is challenged under Section 34 before  

a competent court, the enforcement proceeding would be  

adjourned and the court may order suitable security. There  

will be only one challenge to an award, either under Section 34  

or Section 48. Referring to Section 51, Mr. Gopal  

Subramanium submits that the rights available under Part II  

are in addition to rights under Part I. This section firstly  

-  - 28

Page 29

postulates a hypothesis that the Chapter on New York  

Convention awards had not been enacted. It further makes  

mention, in such a scenario, of certain rights already  

occupying the field that is intended to be covered by the  

chapter on New York conventions. It also mentions that such  

rights are coextensive with the rights under the chapter on the  

New York Convention. Therefore, the fact that certain  

provisions in Part II of the Arbitration Act, 1996 appear to  

function in the same field as provisions in Part I, does not  

mean that the provisions of Part I cease to have effect, or that  

the provisions of Part I are no longer available to a party. This,  

according to Mr. Subramanium, is in consonance with the  

history of New York Convention and the Model Law, which  

shows that the Model Law was intended to fill the gaps left by  

the New York Convention as well as function as a complete  

code. He, therefore, urges that the sections which have come to  

be considered essential for the success of arbitration, such as  

Sections 9, 11 and 34, must be considered also available to the  

parties seeking recognition and enforcement of foreign awards

26. Finally, he submits that the decision in Bhatia  

International (supra) is a harmonious construction of Part I  

and Part II of the Arbitration Act, 1996. He further submits  

-  - 29

Page 30

that the case of Venture     Global     Engineering   Vs. Satyam  

Computer     Services     Ltd.     &     Anr.  20   (hereinafter referred to as  

“Venture Global Engineering”) has been correctly decided by  

this Court. Mr. Subramanium further pointed out that the  

judgments of this Court in the case of ONGC Vs. Western  

Company     of     North     America  21   and National     Thermal     Power    

Corporation Vs. Singer     Company     &     Ors.   (supra) have  

appropriately set aside the awards challenged therein even  

though the same were not made in India.   

27. Mr. E.R. Kumar appearing in SLP (C) No. 31526-

31528 of 2009 has adopted the submissions made by Mr.  

Subramanium.  In addition, he submits that the National  

Arbitral Law, i.e., Part I of the Arbitration Act, 1996 necessarily  

applies to all arbitrations arising between domestic parties and  

pertaining to a domestic dispute.  Thus, even if the parties in  

such a case agree with the situs to be abroad, the same will  

not ipso facto take such arbitrations outside the applicability of  

Part I and operate to exclude the jurisdiction of Indian Courts  

therein.  In other words, two Indian parties involved in a purely  

domestic dispute can not contractually agree to denude the  

Courts of this country of their jurisdictions with respect to a  

20  [2008 (4) SCC 190]

21  1987 (1) SCC 496

-  - 30

Page 31

legal dispute arising between them in India.  He submits that  

such a contract would be void under Section 23 and Section 28  

of the Indian Contract Act.

28. He placed reliance on a judgment of this Court in  

the case of ABC     Laminart     Pvt.     Ltd.   Vs. A.P.     Agencies,    

Salem  22  .  He relies on Para 10 and 16 of the above judgment.  

He also relied on the case of Interglobe     Aviation     Ltd.   Vs.  N.  

Satchidanand  23  , wherein this Court has followed the decision  

in ABC Laminart Pvt. Ltd. (supra).   

29. He submits that the UNCITRAL Model Law has  

defined the term “international” in a broad and expansive  

manner allowing full sway to “party autonomy”. Under the  

Model Law, it is open to the parties to give international flavour  

to an otherwise purely domestic relationship, merely by  

choosing a situs of arbitration abroad [Article 1(3)(b)(i)] or even  

merely by labelling the arbitration an international one. [Article  

1(3)(c)].        

30. The Indian law has consciously and correctly  

departed from the same and chosen only the nationality test  

22  1989 (2) SCC 163

23  2011 (7) SCC 463

-  - 31

Page 32

for defining an arbitration as “international” as is apparent  

from      Section 2(1)(f) of the Arbitration Act, 1996. Relying on  

the provision of Sections 2(2), 20 and 28, he further submits  

that Arbitration Act, 1996 precludes Indian parties to a purely  

domestic dispute from choosing a place of arbitration outside  

India.  Mr. Kumar goes even further to submit that when both  

the parties are Indian, the substantive law governing the  

dispute must necessarily be Indian irrespective of the situs of  

the arbitration and irrespective of any provision in the contract  

between the parties to the contrary.  He submits that the same  

principle applies with equal force to the arbitration law too,  

that is to say, that if it is not open to two Indian parties with  

regard to an entirely domestic dispute to derogate from the  

Indian laws of contract, evidence etc., it is equally not open to  

them derogate from the Indian arbitrational law either.  He  

relies on judgment of this Court in the case of TDM  

Infrastructure     Pvt.     Ltd.   Vs. U.E.     Development     India     Pvt.    

Ltd.,  24    Paragraphs 19, 20 and 23.  He, however, very fairly  

points out that this was a case under Section 11 and the point  

in issue here did not specifically arise for consideration in the  

said case.  

History     of     Arbitration     in     India     -      24  2008 (14) SCC 271

-  - 32

Page 33

31. Before we embark upon the task of interpreting the  

provisions of the Arbitration Act, 1996, it would be apposite to  

narrate briefly the history of Arbitration Law in India upto the  

passing of Arbitration Act, 1996. This exercise is undertaken  

purely to consider: (i) what was the law before the Arbitration  

Act, 1996 was passed; (ii) what was the mischief or defect for  

which the law had not provided; (iii) what remedy Parliament  

has appointed; (iv) the reasons of the remedy.

32. Resolution of disputes through arbitration was not  

unknown in India even in ancient times. Simply stated,  

settlement of disputes through arbitration is the alternate  

system of resolution of disputes whereby the parties to a  

dispute get the same settled through the intervention of a third  

party. The role of the court is limited to the extent of regulating  

the process. During the ancient era of Hindu Law in India,  

there were several machineries for settlement of disputes  

between the parties. These were known as Kulani (village  

council), Sreni (corporation) and Puga (assembly).25   Likewise,  

commercial matters were decided by Mahajans and Chambers.  

The resolution of disputes through the panchayat was a  

different system of arbitration subordinate to the courts of law.  

25  See P.V Kane History of Dharmasastra, Vol.III P.242

-  - 33

Page 34

The arbitration tribunal in ancient period would have the  

status of panchayat in modern India.26 The ancient system of  

panchayat has been given due statutory recognition through  

the various Panchayat Acts subsequently followed by  

Panchayati Raj Act, 1994. It has now been constitutionally  

recognized in Article 243 of the Constitution of India.

33. However, we are concerned here with modern  

arbitration law, therefore, let us proceed to see the legislative  

history leading to the enactment of Arbitration Act, 1996.  

The     Indian     Scenario     -      

34.  The first Indian Act on Arbitration law came to be  

passed in 1899 known as Arbitration Act, 1899. It was based  

on the English Arbitration Act, 1899. Then came the Code of  

Civil Procedure, 1908. Schedule II of the Code contained the  

provisions relating to the law of Arbitration which were  

extended to the other parts of British India. Thereafter the  

Arbitration Act, 1940 (Act No.10 of 1940) (hereinafter referred  

to as the “1940 Act”) was enacted to consolidate and amend  

the law relating to arbitration. This Act came into force on 1st  

July, 1940. It is an exhaustive Code in so far as law relating to  

the domestic arbitration is concerned. Under this Act,  

26  See Justice S.Varadachariar Hindu Judicial System P.98

-  - 34

Page 35

Arbitration may be without the intervention of a Court or with  

the intervention of a Court where there is no suit pending or in  

a pending suit. This Act empowered the Courts to modify the  

Award (Section 15), remit the Award to the Arbitrators for  

reconsideration (Section 16) and to set aside the Award on  

specific grounds (Section 30). The 1940 Act was based on the  

English Arbitration Act, 1934. The 1934 Act was replaced by  

the English Arbitration Act, 1950 which was subsequently  

replaced by the Arbitration Act, 1975. Thereafter the 1975 Act  

was also replaced by the Arbitration Act, 1979. There were,  

however, no corresponding changes in the 1940 Act. The law of  

arbitration in India remained static.  

35. The disastrous results which ensued from the  

abuse of the 1940 Act are noticed by this Court in the case of  

Guru     Nanak     Foundation   Vs. M/s.     Rattan     Singh     &     Sons.  27  

Justice D.A. Desai speaking for the court expressed the  

concern and anguish of the court about the way in which the  

proceedings under the 1940 Act, are conducted and without an  

exception challenged in courts. His Lordship observed :

"Interminable, time consuming, complex and  expensive court procedures impelled jurists to  search for an alternative forum, less formal, more  effective and speedy for resolution of disputes  

27  1981 (4) SCC 634

-  - 35

Page 36

avoiding procedural claptrap and this led them to  Arbitration Act, 1940 ("Act" for short). However, the  way in which the proceedings under the Act are  conducted and without an exception challenged in  Courts, has made lawyers laugh and legal  philosophers weep. (Emphasis supplied). Experience  shows and law reports bear ample testimony that  the proceedings under the Act have become highly  technical accompanied by unending prolixity, at  every stage providing a legal trap to the unwary.  Informal forum chosen by the parties for expeditious  disposal of their disputes has by the decisions of the  Courts been clothed with ‘legalese’  of unforeseeable  complexity. This case amply demonstrates the  same."

36. This was the arena of domestic arbitration and  

domestic award.  

International     Scenario     -   

37.  Difficulties were also being faced in the  

International sphere of Trade and Commerce. With the growth  

of International Trade and Commerce, there was an increase in  

disputes arising out of such transactions being adjudicated  

through Arbitration. One of the problems faced in such  

Arbitration, related to recognition and enforcement of an  

Arbitral Award made in one country by the Courts of other  

countries. This difficulty was sought to be removed through  

various International Conventions. The first such International  

Convention was the Geneva Protocol on Arbitration Clauses,  

-  - 36

Page 37

1923, popularly referred to as "the 1923 Protocol". It was  

implemented w.e.f. 28th July, 1924. This Protocol was the  

product of the initiative taken by the International Chamber of  

Commerce (ICC) under the auspices of the League of Nations.  

The 1923 Protocol sought to make arbitration agreements and  

arbitration clauses in particular enforceable internationally. It  

was also sought to ensure that Awards made pursuant to such  

arbitration agreements would be enforced in the territory other  

than the state in which they were made. The 1923 Protocol  

proved to be inadequate. It was followed by the Geneva  

Convention on the execution of Foreign Arbitrated Awards,  

1927 and is popularly known as the "Geneva Convention of  

1927". This convention was made effective on 25th July, 1929.  

India became a signatory to both the 1923 Protocol and the  

1927 Convention on 23rd October, 1937. It was to give effect to  

both the 1923 Protocol and 1927 Convention that the  

Arbitration (Protocol and Convention) Act, 1937 was enacted in  

India. Again a number of problems were encountered in the  

operation of the 1923 Protocol and the 1927 Geneva  

Convention. It was felt that there were limitations in relation to  

their fields of application. Under the 1927 Geneva Convention  

a party in order to enforce the Award in the Country of an  

-  - 37

Page 38

origin was obliged to seek a declaration in the country where  

the arbitration took place to the effect that the Award was  

enforceable. Only then could the successful party go ahead  

and enforce the Award in the country of origin. This led to the  

problem of “double exequatur”, making the enforcement of  

arbitral awards much more complicated.  In 1953 the  

International Chamber of Commerce promoted a new treaty to  

govern International Commercial Arbitration. The proposals of  

ICC were taken up by the United Nations Economic Social  

Council. This in turn led to the adoption of the convention on  

the Recognition and Enforcement of Foreign Arbitral Awards at  

New York in 1958 (popularly known as "the New York  

Convention"). The New York Convention is an improvement on  

the Geneva Convention of 1927. It provides for a much more  

simple and effective method of recognition and enforcement of  

foreign arbitral awards. It gives much wider effect to the  

validity of arbitration agreement. This convention came into  

force on 7th June, 1959. India became a State Signatory to this  

convention on 13th July, 1960. The Foreign Awards  

(Recognition and Enforcement) Act, 1961 was enacted to give  

effect to the New York Convention. Thus prior to the enactment  

of the Arbitration Act, 1996, the law of Arbitration in India was  

-  - 38

Page 39

contained in the Protocol and Convention Act, 1937, the  

Arbitration Act, 1940 and the Foreign Awards (Recognition and  

Enforcement) Act, 1961. There were no further amendments in  

the aforesaid three acts.  Therefore, it was generally felt that  

the arbitration laws in India had failed to keep pace with the  

developments at the international level.   

The     Arbitration     Act,     1996   

The     Objects     and     Reasons     of     the     Act   

38. The Statement of Objects and Reasons referred to  

the fact that the existing legal framework was outdated and  

that the economic reforms in India would not be fully effective  

as “the law dealing with settlement of both domestic and  

international commercial disputes remained out of tune with  

such reforms”.  It then refers to the Model Law and the  

recognition of the general assembly of the United Nations that  

all countries give due consideration to the Model Laws in view  

of the “desirability of uniformity of the law of arbitral procedures  

and the specific needs of international commercial arbitration  

practice”.  Finally, the Statement of Objects and Reasons states  

as follows:-    

“3. Though the said UNCITRAL Model Law and  Rules are intended to deal with international  

-  - 39

Page 40

commercial arbitration and conciliation, they could,  with appropriate modifications, serve as a model for  legislation on domestic arbitration and conciliation.  The present bill seeks to consolidate and amend the  law relating to domestic arbitration, international  commercial arbitration, enforcement of foreign  arbitral awards and to define the law relating to  conciliation, taking into account the said UNCITRAL  Model Law and Rules.”   

The main objectives of the bill are as under:-

“(i) to comprehensively cover international and  commercial arbitration and conciliation as also  domestic arbitration and conciliation;

(ii) to make provision for an arbitral procedure  which is fair, efficient and capable of meeting  the needs of the specific arbitration;

(iii) to provide that the arbitral tribunal gives  reasons for its arbitral award;

(iv) to ensure that the arbitral tribunal remains  within the limits of its jurisdiction:

(v) to minimise the supervisory role of Courts in  the arbitral process;

(vi) to permit an arbitral tribunal to use mediation,  conciliation, or other procedures during the  arbitral proceedings to encourage settlement of  disputes;

-  - 40

Page 41

(vii) to provide that every final arbitral award is  enforced in the same manner as if it were a  decree of the Court;

(viii) to provide that a settlement agreement reached  by the parties as a result of conciliation  proceedings will have the same status and  effect as an arbitral award on agreed terms on  the substance of the dispute rendered by an  arbitral tribunal; and

(ix) to provide that, for purposes of enforcement of  foreign awards, every arbitral award made in a  country to which one of the two International  Conventions relating to foreign arbitral awards  to which India is a party applies, will be treated  as a foreign award.”

The Act is one “to consolidate and amend the law relating  

to domestic arbitration, international commercial arbitration and  

enforcement of foreign arbitral awards as also to define the law  

relating to conciliation and for matters connected therewith or  

incidental thereto.”  

39. The Preamble to the Arbitration Act, 1996 repeats  

to some extent what the Statement of Objects provide,  

materially:-

“AND WHEREAS the said Model Law and Rules make  significant contribution to the establishment of a  unified legal framework for the fair and efficient  settlement of disputes arising in international  commercial relations;

-  - 41

Page 42

AND WHEREAS it is expedient to make law respecting  arbitration and conciliation, taking into account the  aforesaid Model Law and Rules;”

Scheme     of     the     Arbitration     Act,     1996     -   

40. The Arbitration Act, 1996 is divided into four parts.  

Part I which is headed “Arbitration”; Part II which is headed  

“Enforcement of Certain Foreign Awards”; Part III which is  

headed “Conciliation”  and Part IV being “Supplementary  

Provisions”.  We may notice here that it is only Parts I and II  

which have relevance in the present proceedings.  

41. We may further notice here that the 1961 Foreign  

Awards Act was enacted specifically to give effect to the New  

York Convention. The preamble of the 1961 Act is as follows :  

"An Act to enable effect to be given to the  Convention on the Recognition and Enforcement of  Foreign Arbitral Awards, done at New York on the  10th day of June, 1958, to which India is a party and  for purposes connected therewith."

42. In the 1961 Act, there is no provision for  

challenging the Foreign Award on merits similar or identical to  

the provisions contained in Sections 16 and 30 of the 1940  

Act, which gave power to remit the award to the arbitrators or  

umpire for reconsideration under Section 30 which provided  

-  - 42

Page 43

the grounds for setting aside an award.  In other words, the  

1961 Act dealt only with the enforcement of foreign awards.  

The Indian Law has remained as such from 1961 onwards.  

There was no intermingling of matters covered under the 1940  

Act, with the matters covered by the 1961 Act.

43. Internationally, the Arbitration Law developed in  

different countries to cater for the felt needs of a particular  

country. This necessarily led to considerable disparity in the  

National Laws on arbitration. Therefore, a need was felt for  

improvement and harmonization as National Laws which were,  

often, particularly inappropriate for resolving international  

commercial arbitration disputes.  The explanatory note by the  

UNCITRAL Secretariat refers to the recurring inadequacies to  

be found in outdated National Laws, which included provisions  

that equate the arbitral process with Court litigation and  

fragmentary provisions that failed to address all relevant  

substantive law issues.  It was also noticed that “even most of  

those laws that appear to be up-to-date and comprehensive  

were drafted with domestic arbitration primarily, if not  

exclusively, in mind”.  It further mentions that “while this  

approach is understandable in view of the fact that even today  

the bulk of cases governed by arbitration law would be of  

-  - 43

Page 44

purely domestic nature, the unfortunate consequence is that  

traditional local concepts are imposed on international cases  

and the needs of modern practice are often not met.”  There  

was also unexpected and undesired restrictions found in  

National Laws, which would prevent the parties, for example,  

from submitting future disputes to arbitration.  The Model Law  

was intended to reduce the risk of such possible frustration,  

difficulties or surprise.  Problems also stemmed from  

inadequate arbitration laws or from the absence of specific  

legislation governing arbitration which were aggravated by the  

fact that National Laws differ widely.  These differences were  

frequent source of concern in international arbitration, where  

at-least one of the parties is, and often both parties are,  

confronted with foreign and unfamiliar provisions and  

procedures.  It was found that obtaining a full and precise  

account of the law applicable to the arbitration is, in such  

circumstances, often expensive, impractical or impossible.  

44. With these objects in view, the UNCITRAL Model  

Law on International Arbitration (“the Model Law”) was adopted  

by the United Nations Commission on International Trade Law  

(UNCITRAL) on 21st June, 1985 at the end of the 18th Session  

of the Commission.  The General Assembly in its      Resolution  

-  - 44

Page 45

40 of 1972 on 11th December, 1985 recommended that "all  

States give due consideration to the Model Law on  

international commercial arbitration, in view of the desirability  

of uniformity of the law of arbitral procedures and the specific  

needs of international commercial arbitration practice".

45. The aim and the objective of the Arbitration Act,  

1996 is to give effect to the UNCITRAL Model Laws.

46.   Keeping in view the aforesaid historical background; the  

objects and reasons of the Act and the elaborate submissions  

made by the learned counsel for the parties, it would now be  

necessary to consider the true scope of the provisions of Part I  

and Part II of the Arbitration Act, 1996.   

47. Since the reference relates to the ratio in Bhatia  

International (supra) and Venture Global Engineering  

(supra), it would be appropriate to make a brief note about the  

reasons given by this Court in support of the conclusions  

reached therein.  

48. In Bhatia International, the appellant entered into  

a contract with the 1st respondent on 9th May, 1997. This  

contract contained an arbitration clause, which provided that  

-  - 45

Page 46

arbitration was to be as per the rules of the International  

Chamber of Commerce (for short “ICC”). On 23rd October,  

1997, the 1st respondent filed a request for arbitration with  

ICC. Parties agreed that the arbitration be held in Paris,  

France. ICC appointed a sole arbitrator.  The 1st respondent  

filed an application under Section 9 of the Arbitration Act,  

1996 before the IIIrd Additional District Judge, Indore, M.P.  

against the appellant and the 2nd respondent. One of the  

interim reliefs sought was an order of injunction restraining  

these parties from alienating, transferring and/or creating  

third-party rights, disposing of, dealing with and/or selling  

their business assets and properties. The appellant raised the  

plea of maintainability of such an application. The appellant  

contended that Part I of the Arbitration Act, 1996 would not  

apply to arbitrations where the place of arbitration is not in  

India. This application was dismissed by the IIIrd Additional  

District Judge on 1st February, 2000. It was held that the  

Court at Indore had jurisdiction and the application was  

maintainable. The appellant filed a writ petition before the  

High Court of Madhya Pradesh, Indore Bench. The said writ  

petition was dismissed by the judgment dated 10th October,  

2000, which was impugned in the appeal before this Court.  

-  - 46

Page 47

On behalf of the appellants, it was submitted that Part I of the  

Arbitration Act, 1996 only applies to arbitrations where the  

place of arbitration is in India. It was also submitted that if the  

place of arbitration is not in India then Part II of the  

Arbitration Act, 1996 would apply. Reliance was also placed on  

Section 2(1)(f).  With regard to Section 2(4) and (5), it was  

submitted that the aforesaid provisions would only apply to  

arbitrations which take place in India.  It was submitted that if  

it is held that   Part I applies to all arbitrations, i.e., even to  

arbitrations whose place of arbitration is not in India, then  

sub-section (2) of Section 2 would become redundant and/or  

otiose.  It was also pointed out that since Section 9 and Section  

17 fall in Part I, the same would not have any application in  

cases where the place of arbitration is not in India.  It was  

emphasised that the legislature had deliberately not provided  

any provision similar to Section 9 and Section 17 in Part II.  It  

was also submitted that a plain reading of Section 9 makes it  

clear that it would not apply to arbitrations which take place  

outside India. It was further submitted that Section 9 provides  

that an application for interim measures must be made before  

the award is enforced in accordance with Section 36, which  

deals with enforcement of domestic awards only. On the other  

-  - 47

Page 48

hand, provisions for enforcement of foreign awards are  

contained in Part II.  It was submitted that Section 9 does not  

talk of enforcement of the award in accordance with Part II.  It  

was further submitted that there should be minimum  

intervention by the Courts in view of the underlying principle  

in Section 5 of the Arbitration Act, 1996.  On the other hand,  

the respondents therein had made the submissions, which are  

reiterated before us.  In Paragraph 14 of the Judgment, it is  

held as follows:-

“14. At first blush the arguments of Mr Sen appear  very attractive. Undoubtedly sub-section (2) of  Section 2 states that Part I is to apply where the  place of arbitration is in India. Undoubtedly, Part II  applies to foreign awards. Whilst the submissions of  Mr Sen are attractive, one has to keep in mind the  consequence which would follow if they are  accepted. The result would:

(a) Amount to holding that the legislature has  left a lacuna in the said Act. There would  be a lacuna as neither Part I or II would  apply to arbitrations held in a country  which is not a signatory to the New York  Convention or the Geneva Convention  (hereinafter called “a non-convention  country”). It would mean that there is no  law, in India, governing such arbitrations.

(b) Lead to an anomalous situation, inasmuch  as Part I would apply to Jammu and  Kashmir in all international commercial  arbitrations but Part I would not apply to  the rest of India if the arbitration takes  place out of India.

-  - 48

Page 49

(c) Lead to a conflict between sub-section (2)  of Section 2 on one hand and sub-sections  (4) and (5) of Section 2 on the other.  Further, sub-section (2) of Section 2 would  also be in conflict with Section 1 which  provides that the Act extends to the whole  of India.

(d) Leave a party remediless inasmuch as in  international commercial arbitrations  which take place out of India the party  would not be able to apply for interim relief  in India even though the properties and  assets are in India. Thus a party may not  be able to get any interim relief at all.”

49. It is held that the definition of international  

commercial arbitration under Section 2(1)(f) makes no  

distinction between international commercial arbitrations held  

in India or outside India. Further it is also held that the  

Arbitration Act, 1996 no where provides that its provisions are  

not to apply to international commercial arbitrations which take  

place in a non-convention country. Hence, the conclusion at  

Paragraph 14(a).  On the basis of the discussion in Paragraph  

17, this Court reached the conclusion recorded at Paragraph  

14(b).  The conclusions at Paragraph 14(c) is recorded on the  

basis of the reasons stated in Paragraphs 19, 20, 21, 22 and  

23.  Upon consideration of the provision contained in Sections  

2(7), 28, 45 and 54, it is held that Section 2(2) is only an  

-  - 49

Page 50

inclusive and clarificatory provision.  The provision contained  

in Section 9 is considered in Paragraphs 28, 29, 30 and 31.  It  

is concluded in Paragraph 32 as follows:-

“32. To conclude, I 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 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.”

50. In Venture Global Engineering (supra), this Court  

relied on Paragraphs 14, 17, 21, 26, 32 and 35.  It is  

concluded in Paragraph 37 as follows:-

“37. In view of the legal position derived from Bhatia  International we are unable to accept Mr. Nariman's  argument. It is relevant to point out that in this  proceeding we are not deciding the merits of the  claim of both parties, particularly, the stand taken  in the suit filed by the appellant herein for setting  aside the award. It is for the court concerned to  decide the issue on merits and we are not  expressing anything on the same. The present  conclusion is only with regard to the main issue  whether the aggrieved party is entitled to challenge  the foreign award which was passed outside India in  terms of Sections 9/34 of the Act. Inasmuch as the  three-Judge Bench decision is an answer to the  main issue raised, we are unable to accept the  contra view taken in various decisions relied on by  

-  - 50

Page 51

Mr. Nariman. Though in Bhatia International the  issue relates to filing a petition under Section 9 of  the Act for interim orders the ultimate conclusion  that Part I would apply even for foreign awards is an  answer to the main issue raised in this case.”

51. As noticed above, the learned senior counsel for the  

appellants have supported the ratio of law laid down in Bhatia  

International (supra) and Venture Global Engineering  

(supra). They have also supported the decisions in ONGC Vs.  

Western     Company     of     North     America   (supra) and National  

Thermal     Power     Corporation   Vs. Singer     Company     &     Ors.    

(supra).   

52. In order to consider the issues raised and to  

construe the provisions of the Arbitration Act, 1996 in its  

proper perspective, it would be necessary to analyse the text of  

the Arbitration Act, 1996 with reference to its legislative history  

and international conventions. We shall take due notice of the  

stated objects and reasons for the enactment of the Arbitration  

Act, 1996.

53. Further, for a comprehensive and clear  

understanding of the connotations of the terms used in the  

Arbitration Act, 1996, a brief background of various laws  

applicable to an International Commercial Arbitration and  

-  - 51

Page 52

distinct approaches followed by countries across the world will  

also be useful.    

54. With utmost respect, upon consideration of the  

entire matter, we are unable to support the conclusions  

recorded by this Court in both the judgments i.e. Bhatia  

International (supra) and Venture Global Engineering  

(Supra).  

 55. In our opinion, the conclusion recorded at  

Paragraph 14B can not be supported by either the text or  

context of the provisions in Section 1(2) and proviso thereto.  

Let us consider the provision step-by–step, to avoid any  

confusion. A plain reading of Section 1 shows that the  

Arbitration Act, 1996 extends to whole of India, but the  

provisions relating to domestic arbitrations, contained in Part  

I, are not extended to the State of Jammu and Kashmir. This is  

not a new addition. Even the 1940 Act states:

“Section 1 - Short title, extend and commencement – (1)  ……………………………….,  (2) It extends to the whole of India (except the State  of Jammu and Kashmir).”  

56. Thus, the Arbitration Act, 1996 maintains the  

earlier position so far as the domestic arbitrations are  

-  - 52

Page 53

concerned.  Thereafter, comes the new addition in the proviso  

to      Section 1(2), which reads as under:

“Provided that Parts I, III and IV shall extend to the  State of Jammu and Kashmir only in so far as they  relate to international commercial arbitration or, as  the case may be, international commercial  conciliation.”

57. The proviso is necessary firstly due to the special  

status of the State of Jammu & Kashmir, secondly to update  

the Jammu and Kashmir Act, 1945. In our opinion, the proviso  

does not create an anomaly. The aforesaid Act is almost a  

carbon copy of the 1940 Act. Both the Acts do not make any  

provision relating to International Commercial Arbitration.  

Such a provision was made under the Arbitration Act, 1996 by  

repealing the existing three Acts, i.e., 1937 Protocol Act, 1940  

Act and the Foreign Awards Act, 1961. Therefore, the proviso  

has been added to incorporate the provisions relating to  

International Commercial Arbitration. The Arbitration Act,  

1996 would not apply to purely domestic arbitrations which  

were earlier covered by the Jammu and Kashmir Act, 1945  

and now by the Jammu & Kashmir Arbitration and  

Conciliation Act, 1997.  We are also unable to agree with the  

conclusion that in Jammu & Kashmir, Part I would apply even  

to arbitration which are held outside India as the proviso does  

-  - 53

Page 54

not state that Part I would apply to Jammu & Kashmir only if  

the place of Arbitration is in Jammu & Kashmir. Since     Section  

2(2) of Part I applies to all arbitrations, the declaration of  

territoriality contained therein would be equally applicable in  

Jammu & Kashmir. The provision contained in Section 2(2) is  

not affected by the proviso which is restricted to Section 1(2).  

By the process of interpretation, it can not be read as a proviso  

to Section 2(2) also. It can further be seen that the provisions  

relating to “Enforcement of Certain Foreign Awards” in Part II  

would apply without any restriction, as Part II has no relation  

to the enforcement of any purely domestic awards or  

domestically rendered international commercial awards. These  

would be covered by the Jammu & Kashmir Act, 1997.   

58.  In view of the above, we are unable to discern any  

anomaly as held in Bhatia International (supra). We also do  

not discern any inconsistency between Section 1 and Section  

2(2) of the Arbitration Act, 1996.

Does     Section     2(2)     bar     the     Application     of     Part     I     to    Arbitrations     which     take     place     outside     India?      

59. The crucial difference between the views expressed  

by the appellants on the one hand and the respondents on the  

-  - 54

Page 55

other hand is as to whether the absence of the word “only” in  

Section 2(2) clearly signifies that Part I of the Arbitration Act,  

1996 would compulsorily apply in the case of arbitrations held  

in India, or would it signify that the Arbitration Act, 1996  

would be applicable only in cases where the arbitration takes  

place in India. In Bhatia International and Venture Global  

Engineering (supra), this Court has concluded that Part I  

would also apply to all arbitrations held out of India, unless  

the parties by agreement, express or implied, exclude all or any  

of its provisions. Here again, with utmost respect and humility,  

we are unable to agree with the aforesaid conclusions for the  

reasons stated hereafter.

60. It is evident from the observation made by this  

Court in Konkan Railway Corporation Ltd. & Anr. (supra)  

that the Model Law was taken into account in drafting of the  

Arbitration Act, 1996.  In Paragraph 9, this Court observed  

“that the Model Law was only taken into account in the  

drafting of the said Act is, therefore, patent.  The Arbitration  

Act, 1996 and the Model Law are not identically drafted”.  

Thereafter, this Court has given further instances of provisions  

of the Arbitration Act, 1996, not being in conformity with the  

-  - 55

Page 56

Model Law and concluded that “The Model Law and judgments  

and literature thereon are, therefore, not a guide to the  

interpretation of the Act and, especially of Section 12 thereof”.  

The aforesaid position, according to Mr. Sorabjee has not been  

disagreed with by this Court in SBP & Co. (supra).  We agree  

with the submission of Mr. Sorabjee that the omission of the  

word “only”  in Section 2(2) is not an instance of “CASUS  

OMISSUS”. It clearly indicates that the Model Law has not  

been bodily adopted by the Arbitration Act, 1996.  But that can  

not mean that the territorial principle has not been accepted.  

We would also agree with Mr. Sorabjee that it is not the  

function of the Court to supply the supposed omission, which  

can only be done by Parliament.  In our opinion, legislative  

surgery is not a judicial option, nor a compulsion, whilst  

interpreting an Act or a provision in the Act. The observations  

made by this Court in the case of Nalinakhya Bysack (supra)  

would tend to support the aforesaid views, wherein it has been  

observed as follows:-

“It must always be borne in mind, as said by Lord  Halsbury in Commissioner     for     Special     Purpose     of    Income     Tax   Vs. Premsel  28  , that it is not competent  to any Court to proceed upon the assumption that  the legislature has made a mistake.  The Court must  proceed on the footing that the legislature intended  

28  LR (1891) AC 531 at Page 549

-  - 56

Page 57

what it has said.  Even if there is some defect in the  phraseology used by the legislature the Court  cannot, as pointed out in Crawford Vs. Spooner  29  ,  aid the legislature’s defective phrasing of an Act or  add and amend or, by construction, make up  deficiencies which are left in the Act.  Even where  there is a casus omissus, it is, as said by Lord  Russell of Killowen in Hansraj     Gupta   Vs. Official  Liquidator     of     Dehra     Dun-Mussoorie     Electric    Tramway     Co.,     Ltd.  30  , for others than the Courts to  remedy the defect.”  

61. Mr. Sorabjee has also rightly pointed out the  

observations made by Lord Diplock in the case of Duport  

Steels Ltd. (supra).  In the aforesaid judgment, the House of  

Lords disapproved the approach adopted by the Court of  

Appeal in discerning the intention of the legislature, it is  

observed that:-

“…the role of the judiciary is confined to  ascertaining from the words that Parliament has  approved as expressing its intention what that  intention was, and to giving effect to it.  Where the  meaning of the statutory words is plain and  unambiguous it is not for the judges to invent fancied  ambiguities as an excuse for failing to give effect to its  plain meaning because they themselves consider that  the consequences of doing so would be inexpedient,  or even unjust or immoral. In controversial matters  such as are involved in industrial relations there is  room for differences of opinion as to what is  expedient, what is just and what is morally  justifiable.  Under our Constitution it is Parliament’s  opinion on these matters that is paramount.”  

29  6 Moo PC 1 : 4 MIA 179

30  (1933) LR 60 IA 13; AIR (1933) PC 63

-  - 57

Page 58

(emphasis supplied)

In the same judgment, it is further observed:-

“  But     if     this     be     the     case     it     is     for     Parliament,     not     for    the     judiciary,     to     decide     whether     any     changes     should    be     made     to     the     law     as     stated     in     the     Act.  ”   

62. The above are well accepted principles for  

discerning the intention of the legislature.  In view of the  

aforesaid, we shall construe the provision contained in Section  

2(2) without adding the word “only” to the provision.   

63. We are unable to accept the submission of the  

learned counsel for the appellants that the omission of the  

word “only”  from Section 2(2) indicates that applicability of  

Part I of the Arbitration Act, 1996 is not limited to the  

arbitrations that take place in India.  We are also unable to  

accept that   Section 2(2) would make Part I applicable even to  

arbitrations which take place outside India.  In our opinion, a  

plain reading of Section 2(2) makes it clear that Part I is  

limited in its application to arbitrations which take place in  

India. We are in agreement with the submissions made by the  

learned counsel for the respondents, and the interveners in  

support of the respondents, that Parliament by limiting the  

applicability of Part I to arbitrations which take place in India  

-  - 58

Page 59

has expressed a legislative declaration. It has clearly given  

recognition to the territorial principle.  Necessarily therefore, it  

has enacted that Part I of the Arbitration Act, 1996 applies to  

arbitrations having their place/seat in India.  

Does     the     missing   ‘  only  ’    indicate     a     deviation     from     Article    1(2)     of     the     Model     Law?   

64. As noticed earlier the objects and reasons for the  

enactment of the Arbitration Act, 1996 clearly indicate that the  

Parliament had taken into account the UNCITRAL Model Laws.  

The statement of the objects and reasons of the Arbitration  

Act, 1996 clearly indicates that law of arbitration in India at  

the time of enactment of the Arbitration Act, 1996, was  

substantially contained in three enactments, namely, The  

Arbitration Act, 1940; The Arbitration (Protocol and  

Convention) Act, 1937 and The Foreign Awards (Recognition  

and Enforcement) Act, 1961. It is specifically observed that it is  

widely felt that the Arbitration Act, 1940, which contains the  

general law of arbitration, has become outdated.  It also  

mentions that the Law Commission of India, several  

representative bodies of trade and industry and experts in the  

fields of arbitration have proposed amendments to the  

-  - 59

Page 60

Arbitration Act, 1940, to make it more responsive to  

contemporary requirements.  It was also recognized that the  

economic reforms initiated by India at that time may not  

become fully effective, if the law dealing with settlement of both  

domestic and international commercial dispute remained out  

of tune with such reforms.  The objects and reasons further  

make it clear that the general assembly has recommended that  

all countries give due consideration to the Model Law adopted  

in 1985, by the UNCITRAL, in view of the desirability of  

uniformity of the law of arbitral procedures and the specific  

needs of international commercial arbitration practice.  

Paragraph 3 of the statement of objects and reasons makes it  

clear that although the UNCITRAL Model Laws are intended to  

deal with international commercial arbitration and conciliation,  

they could, with appropriate modifications, serve as a Model  

Law for legislation of domestic arbitration and conciliation.  

Therefore, the bill was introduced seeking to consolidate and  

amend the law relating to domestic arbitration, international  

commercial arbitration, enforcement of foreign arbitral award  

and to define the law relating to conciliation, taking into  

account the UNCITRAL Model Law and Rules.  We have set out  

the main objects of the bill a little earlier, Paragraph 3(5) of  

-  - 60

Page 61

which clearly states that one of the objects is “to minimize the  

supervisory role of Courts in arbitral process”.

65. Much of the debate before us was concentrated on  

the comparison between Article 1(2) of UNCITRAL and  Section  

2(2).  Learned counsel for the appellants had canvassed that  

the Parliament had deliberately deviated from Article 1(2) of  

UNCITRAL to express its intention that Part I shall apply to all  

arbitrations whether they take place in India or in a foreign  

country.  The word “only”  is conspicuously missing from  

Section 2(2) which is included in Article 1(2) of UNCITRAL. This  

indicates that applicability of Part I would not be limited to  

Arbitrations which take place within India.  Learned counsel  

for the appellants submitted that in case the applicability of  

Section 2(2) is limited to arbitrations which take place within  

India, it would give rise to conflict between Sections 2(2), 2(4),  

2(5), 2(7), 20 and 28. With equal persistence, the learned  

counsel for the respondents have submitted that Part I has  

accepted the territorial principle adopted by UNCITRAL in  

letter and spirit.    

66. Whilst interpreting the provisions of the Arbitration  

Act, 1996, it is necessary to remember that we are dealing with  

-  - 61

Page 62

the Act which seeks to consolidate and amend the law relating  

to domestic arbitration, international commercial arbitration  

and enforcement of foreign arbitral awards.  The aforesaid Act  

also seeks to define the law relating to conciliation and for  

matters connected therewith or incidental thereto.  It is thus  

obvious that the Arbitration Act, 1996 seeks to repeal and  

replace the three pre-existing Acts, i.e., The Arbitration Act,  

1940; The Arbitration (Protocol and Convention) Act, 1937 and  

the Foreign Awards (Recognition and Enforcement) Act, 1961.  

Section 85 repeals all the three Acts. Earlier the 1937 Act  

catered to the arbitrations under the Geneva Convention. After  

the 1958 New York Convention was ratified by India, the 1961  

Act was passed. The domestic law of arbitration had remained  

static since 1940.  Therefore, the Arbitration Act, 1996  

consolidates the law on domestic arbitrations by incorporating  

the provisions to expressly deal with the domestic as well as  

international commercial arbitration; by taking into account  

the 1985 UNCITRAL Model Laws.  It is not confined to the New  

York Convention, which is concerned only with enforcement of  

certain foreign awards.   It is also necessary to appreciate that  

the Arbitration Act, 1996 seeks to remove the anomalies that  

existed in the Arbitration Act, 1940 by introducing provisions  

-  - 62

Page 63

based on the UNCITRAL Model Laws, which deals with  

international commercial arbitrations and also extends it to  

commercial domestic arbitrations. UNCITRAL Model Law has  

unequivocally accepted the territorial principle. Similarly, the  

Arbitration Act, 1996 has also adopted the territorial principle,  

thereby limiting the applicability of Part I to arbitrations, which  

take place in India.   

67. In our opinion, the interpretation placed on Article  

1(2) by the learned counsel for the appellants, though  

attractive, would not be borne out by a close scrutiny of the  

Article.  Article 1(2) reads as under:-

“Article 1(2): The provisions of this law, except  Articles 8, 9, 17(H), 17(I), 17(J), 35 and 36 apply  “only”  if the place of arbitration is in the territories  of this State”.   

68. The aforesaid article is a model and a guide to all  

the States, which have accepted the UNCITRAL Model Laws.  

The genesis of the word “only” in Article 1(2) of the Model Law  

can be seen from the discussions held on the scope of  

application of Article 1 in the 330th meeting, Wednesday, 19  

June, 1985 of UNCITRAL. This would in fact demonstrate that  

the word “only”  was introduced in view of the exceptions  

referred to in Article 1(2) i.e. exceptions relating to Articles 8, 9,  

-  - 63

Page 64

35 & 36 (Article 8 being for stay of judicial proceedings  

covered by an arbitration agreement; Article 9 being for  

interim reliefs; and Articles 35 & 36 being for enforcement of  

Foreign Awards). It was felt necessary to include the word  

“only” in order to clarify that except for Articles 8, 9, 35 & 36  

which could have extra territorial effect if so legislated by the  

State, the other provisions would be applicable on a strict  

territorial basis. Therefore, the word “only”  would have been  

necessary in case the provisions with regard to interim relief  

etc. were to be retained in Section 2(2) which could have extra-

territorial application. The Indian legislature, while adopting  

the Model Law, with some variations, did not include the  

exceptions mentioned in   Article 1(2) in the corresponding  

provision Section 2(2). Therefore, the word “only”  would have  

been superfluous as none of the exceptions were included in  

Section 2(2).

69. We are unable to accept the submission of the  

learned counsel for the appellants that the omission of the  

word “only”, would show that the Arbitration Act, 1996 has not  

accepted the territorial principle. The Scheme of the Act makes  

it abundantly clear that the territorial principle, accepted in  

-  - 64

Page 65

the UNCITRAL Model Law, has been adopted by the Arbitration  

Act, 1996.  

70. That the UNCITRAL Rules adopted strict territorial  

principle is evident from the Report of the UNCITRAL in  

paragraphs 72 to 80 on the work of its 18th Session in Vienna  

between 3rd to 21st June, 1985. The relevant extracts of these  

paragraphs are as under:

“72. Divergent views were expressed as to whether  the Model Law should expressly state its territorial  scope of application and, if so, which connecting  factor should be the determining  criterion……………………………………………………… ………………………………………………………………..”  

“73, As regards the connecting factor which should  determine the applicability of the (Model) Law in a  given State, there was wide support for the so-called  strict territorial criterion, according to which the Law  would apply where the place of arbitration was in that  State………………………………………………………… …………………………………………………………….”

“74. Another view was that the place of arbitration  should not be exclusive in the sense that parties  would be precluded from choosing the law of another  State as the law applicable to the arbitration  procedure…………………………………………………… ………………………………………………………………..”  

“78. The Commission requested the secretariat to  prepare, on the basis of the above discussion, draft  provisions on the territorial scope of application of the  Model Law in general, including suggestions as to  possible exceptions of the general  scope………………………………………………………… ………………………………………………………………… …”

-  - 65

Page 66

“80. In discussing the above proposal, the  Commission decided that, for reasons stated in  support of the strict territorial criterion (see above,  para 73), the applicability of the Model Law should  depend exclusively on the place of arbitration as  defined in the Model  Law…………………………………………………………… ……………………………………………………………….”   

“81. The Commission agreed that a provision  implementing that decision, which had to be included  in article 1, should be formulated along the following  lines:  “The provisions of this Law, except articles 8,  9, 35 and 36 apply only if the place of arbitration is in  the territory of this  State………………………………………………………… …………………………………………………………………. .”

71. Similarly, the acceptance of the territorial principle  

in UNCITRAL has been duly recognized by most of the experts  

and commentators on International Commercial Arbitration.  

The aforesaid position has been duly noticed by Howard  

M. Holtzmann and Joseph E. Beuhaus in “A guide to the  

UNCITRAL Model Law on International Commercial  

Arbitration, Legislative History and Commentary”. Dealing with  

the territorial scope of application of Article 1(2) at Pages 35 to  

38, it is stated:-

“…in early discussions of this issue, Article 27,  dealing with court assistance in taking evidence was  included in the list of exceptions.  At that time, the  draft of that Article provided for such assistance to  foreign arbitrations.  The provision was  subsequently changed to its present format, and, by  

-  - 66

Page 67

virtue of Article 1(2), it applies only to arbitrations in  the enacting State.  Assistance in taking evidence for  use in foreign arbitrations can be provided only  under any rules on the question in other laws of the  State.  

“  The     Commission     adopted     the     principle     that     the    Model     Law     would     only     apply     if     the     place     of    arbitration     was     in     the     enacting     State   – known as the  “  territorial     criterion  ”   for applicability –  only after  extensive debate.  The primary alternative position  was to add a principle called the “  autonomy    criterion  ”   which     would     have     applied     the     Law     also     to    arbitrations     taking     place     in     another     country     if     the    parties     had     chosen     to     be     governed     by     the     procedural    law     of     the     Model     Law     State  .  Thus, if the autonomy  criterion had been adopted, the parties would have  been free, subject to restrictions such as  fundamental justice, public policy and rules of court  competence, to choose the arbitration law of a State  other than that of the place of arbitration.  The  courts of the Model Law State would then  presumably have provided any court assistance  needed by this arbitration, including setting aside,  even though the place of arbitration was elsewhere.  Such a system of party autonomy is envisioned by  the New York Convention, which recognizes that a  State may consider as domestic an award made  outside the State, and vice versa.”

“  The     Commission     decided     not     to     adopt     the     autonomy    criterion.  It was noted that the territorial criterion  was widely accepted by existing national laws, and  that where the autonomy criterion was available it  was rarely used.”

72. We are also unable to accept the submission of the  

learned counsel for the appellants that the Arbitration Act,  

1996 does not make seat of the arbitration as the centre of  

gravity of the arbitration. On the contrary, it is accepted by  

-  - 67

Page 68

most of the experts that in most of the National Laws,  

arbitrations are anchored to the seat/place/situs of  

arbitration. Redfern in Paragraph 3.54 concludes states that  

“the seat of the arbitration is thus intended to be its centre of  

gravity.” This, however, does not mean that all the proceedings  

of the arbitration have to take place at the seat of the  

arbitration. The arbitrators at times hold meetings at more  

convenient locations. This is necessary as arbitrators often  

come from different countries. It may, therefore, on occasions  

be convenient to hold some of the meetings in a location which  

may be convenient to all. Such a situation was examined by  

the court of appeal in England in Naviera     Amazonica     Peruana    

S.A. Vs. Compania     Internacionale     De     Seguros     Del     Peru  31    

therein at p.121 it is observed as follows :

“The preceding discussion has been on the basis  that there is only one “place” of arbitration. This will  be the place chosen by or on behalf of the parties;  and it will be designated in the arbitration  agreement or the terms of reference or the minutes  of proceedings or in some other way as the place or  “seat”  of the arbitration. This does not mean,  however, that the arbitral tribunal must hold all its  meetings or hearings at the place of arbitration.  International commercial arbitration often involves  people of many different nationalities, from many  different countries. In these circumstances, it is by  no means unusual for an arbitral tribunal to hold  meetings or even hearings in a place other than the  designated place of arbitration, either for its own  

31  1988 (1) Lloyd’s Law Reports 116

-  - 68

Page 69

convenience or for the convenience of the parties or  their witnesses…… It may be more convenient for an  arbitral tribunal sitting in one country to conduct a  hearing in another country, for instance, for the  purpose of taking evidence….. In fact circumstances  each move of the arbitral tribunal does not of itself  mean that the seat of arbitration changes. The seat  of arbitration remains the place initially agreed by or  on behalf of the parties.”     

73. These observations were subsequently followed in  

Union     of     India   Vs. McDonnell     Douglas     Corp.  32         

74. It must be pointed out that the law of the seat or  

place where the arbitration is held, is normally the law to  

govern that arbitration. The territorial link between the place of  

arbitration and the law governing that arbitration is well  

established in the international instruments, namely, the New  

York Convention of 1958 and the UNCITRAL Model Law of  

1985. It is true that the terms “seat” and “place” are often used  

interchangeably. In Redfern and Hunter on International  

Arbitration, 5th Edn. (para 3.51), the seat theory is defined  

thus: “The concept that an arbitration is governed by the law of  

the place in which it is held, which is the ‘seat’  (or ‘forum’  or  

locus arbitri) of the arbitration, is well established in both the  

theory and practice of international arbitration. In fact, the  

1923 Geneva Protocol states: ‘The arbitral procedure, including  

32  1993 (3) Lloyd’s Law Reports 48

-  - 69

Page 70

the constitution of the arbitral tribunal, shall be governed by  

the will of the parties and by the law of the country in whose  

territory the arbitration takes place.’ The New York Convention  

maintains the reference to ‘the law of the country where the  

arbitration took place “(Article V(1)(d))”  and, synonymously to  

‘the law of the country where the award is made’ [Article V(1)(a)  

and (e)]. The aforesaid observations clearly show that New York  

Convention continues the clear territorial link between the  

place of arbitration and the law governing that arbitration. The  

author further points out that this territorial link is again  

maintained in the Model Law which provides in Article 1(2)  

that “the provision of this law, except Articles 8, 9, 35 and 36  

apply only if the place of arbitration is in the territory of the  

State”. Just as the Arbitration Act, 1996 maintains the  

territorial link between the place of arbitration and its law of  

arbitration, the law in Switzerland and England also maintain  

a clear link between the seat of arbitration and the lex arbitri.  

Swiss Law states: “the provision of this chapter shall apply to  

any arbitration if the seat of the arbitral tribunal is in  

Switzerland and if, at the time when the arbitration agreement  

was concluded, at least one of the parties had neither its  

domicile nor its habitual residence in Switzerland.33  

33  See Swiss Private International Law Act, 1987, Chapter 12 Article 176 (1)

-  - 70

Page 71

75.  We are of the opinion that the omission of the word  

“only”  in Section 2(2) of the Arbitration Act, 1996 does not  

detract from the territorial scope of its application as embodied  

in Article 1(2) of the Model Law. The article merely states that  

the Arbitration Law as enacted in a given state shall apply if  

the arbitration is in the territory of that State. The absence of  

the word “only” which is found in Article 1(2) of the Model Law,  

from Section 2(2) of the Arbitration Act, 1996 does not change  

the content/import of Section 2(2) as limiting the application of  

Part I of the Arbitration Act, 1996 to arbitrations where the  

place/seat is in India.  

76. For the reasons stated above, we are unable to  

support the conclusion reached in Bhatia International and  

Venture Global Engineering (supra), that Part I would also  

apply to arbitrations that do not take place in India.

77. India is not the only country which has dropped the  

word “only” from its National Arbitration Law. The word “only”  

is missing from the Swiss Private International Law Act, 1987  

Chapter 12, Article 176 (1)(I). It is also missing in Section 2(1)  

of the 1996 Act (U.K.). The provision in Section 2(1) of the U.K.  

-  - 71

Page 72

Act reads as follows :- “2(1) - The provisions of this Part apply  

where the seat of the arbitration is in England, Wales, or  

Northern Ireland.” The aforesaid sections clearly do not provide  

for any exception which, in fact, are separately provided for in  

Section 2(2) and 2(3) of the Arbitration Act, 1996. Therefore,  

we are in agreement with the submission made by Mr.Aspi  

Chenoy that Section 2(2) is an express parliamentary  

declaration/ recognition that Part I of the Arbitration Act, 1996  

applies to arbitration having their place/seat in India and does  

not apply to arbitrations seated in foreign territories.

78. We do not agree with the learned counsel for the  

appellants that there would be no need for the provision  

contained in Section 2(2) as it would merely be stating the  

obvious, i.e., the Arbitration Act, 1996 applies to arbitrations  

having their place/seat in India. In our opinion, the provisions  

have to be read as limiting the applicability of Part I to  

arbitrations which take place in India. If Section 2(2) is  

construed as merely providing that Part I of the Arbitration  

Act, 1996 applies to India, it would be ex facie  

superfluous/redundant. No statutory provision is necessary to  

state/clarify that a law made by Parliament shall apply in  

India/to arbitrations in India. As submitted by Mr. Sorabjee,  

-  - 72

Page 73

another fundamental principle of statutory construction is that  

courts will never impute redundancy or tautology to  

Parliament. See observations of Bhagwati, J. in Umed Vs. Raj  

Singh,34 wherein it is observed as follows: “It is well settled rule  

of interpretation that the courts should, as far as possible,  

construe a statute so as to avoid tautology or superfluity.” The  

same principle was expressed by Viscount Simon in Hill Vs.  

William     Hill     (Park     Lane)     Ltd.  35   in the following words:-

“It is to be observed that though a Parliamentary  enactment (like Parliamentary eloquence) is capable  of saying the same thing twice over without adding  anything to what has already been said once, this  repetition in an Act of Parliament is not to be  assumed. When the legislature enacts a particular  phrase in a statute the presumption is that it is  saying something which has not been said  immediately before. The Rule that a meaning  should, if possible, be given to every word in the  statute implies that, unless there is good reason to  the contrary, the words add something which has  not been said immediately before.”

79. We quote the above in extenso only to demonstrate  

that Section 2(2) is not merely stating the obvious. It would not  

be a repetition of what is already stated in Section 1(2) of the  

Arbitration Act, 1996 which provides that “it extends to the  

whole of India”. Since the consolidated Arbitration Act, 1996  

34  1975 (1) SCC 76 Para 37 at P.103

35  1949 AC 530 at P 546

-  - 73

Page 74

deals with domestic, commercial and international commercial  

arbitrators, it was necessary to remove the uncertainty that  

the Arbitration Act, 1996 could also apply to arbitrations  

which do not take place in India. Therefore, Section 2(2) merely  

reinforces the limits of operation of the Arbitration Act, 1996 to  

India.    

80. Another strong reason for rejecting the submission  

made by the learned counsel for the appellants is that if Part I  

were to be applicable to arbitrations seated in foreign  

countries, certain words would have to be added to Section  

2(2). The section would have to provide that “this part shall  

apply where the place of arbitration is in India and to  

arbitrations having its place out of India.”  Apart from being  

contrary to the contextual intent and object of Section 2(2),  

such an interpretation would amount to a drastic and  

unwarranted rewriting/alteration of the language of Section  

2(2). As very strongly advocated by Mr. Sorabjee, the  

provisions in the Arbitration Act, 1996 must be construed by  

their plain language/terms. It is not permissible for the court  

while construing a provision to reconstruct the provision. In  

other words, the Court cannot produce a new jacket, whilst  

ironing out the creases of the old one. In view of the aforesaid,  

-  - 74

Page 75

we are unable to support the conclusions recorded by this  

Court as noticed earlier.

Is     Section     2(2)     in     conflict     with     Sections     2(4)     and     2(5)     -   

81. We may now take up the submission of the learned  

counsel that Sections 2(4) and 2(5) specifically make Part I  

applicable to all arbitrations irrespective of where they are held.  

This submission is again a reiteration of the conclusions  

recorded in Bhatia International at Paragraph 14C and  

reiterated in Paragraphs 21 and 22. We have earlier held that  

Section 2(2) would not be applicable to arbitrations held  

outside India. We are unable to accept that there is any  

conflict at all between Section 2(2) on the one hand and  

Sections 2(4) and 2(5) on the other hand. Section 2(4) provides  

as under :

“This Part except sub-section (1) of Section 40,  Sections 41 and 43 shall apply to every arbitration  under any other enactment for the time being in  force, as if the arbitration were pursuant to an  arbitration agreement and as if that other  enactment were an arbitration agreement except in  so far as the provisions of this Part are inconsistent  with that other enactment or with any rules made  thereunder.”   

82. It is urged by the appellants that Section 2(4) makes  

-  - 75

Page 76

Part I applicable to “every arbitration”  under any other  

enactment, thereby makes it applicable to arbitrations  

wherever held, whether in India or outside India. In our  

opinion, the submission is devoid of merit.  Section 2(4) makes  

Part I applicable to “every arbitration under any other enactment  

for the time being in force”.  Hence, there must be an enactment  

“for the time being in force”  under which arbitration takes  

place. In our opinion, “any other enactment”  would in its  

ordinary meaning contemplate only an Act made by the Indian  

Parliament. By virtue of Article 245, “Parliament may make  

laws for the whole or any part of India”. Thus it is not possible  

to accept that “every arbitration”  would include arbitrations  

which take place outside India. The phrase “all arbitrations”  

has to be read as limited to all arbitrations that take place in  

India.  The two sub-sections merely recognize that apart from  

the arbitrations which are consensual between the parties,  

there may be other types of arbitrations, namely, arbitrations  

under certain statutes like Section 7 of the Indian Telegraph  

Act, 1886;  or bye-laws of certain Associations  such as  

Association of Merchants, Stock Exchanges and different  

Chamber of Commerce.  Such arbitrations would have to be  

regarded as covered by Part I of the Arbitration Act, 1996,  

-  - 76

Page 77

except in so far as the provisions of Part I are inconsistent with  

the other enactment or any rules made thereunder.  There  

seems to be no indication at all in Section 2(4) that can make  

Part I applicable to statutory or compulsory arbitrations, which  

take place outside India.

83. Similarly, the position under Section 2(5) would  

remain the same.  In our opinion, the provision does not admit  

of an interpretation that any of the provisions of Part I would  

have any application to arbitration which takes place outside  

India.  Section 2(5) reads as under:-

“Subject to the provisions of sub-section (4), and  save insofar as is otherwise provided by any law for  the time being in force or in any agreement in force  between India and any other country or countries,  this Part shall apply to all arbitrations and to all  proceedings relating thereto.”  

84. This sub-clause has been made subject to sub-

clause (4) and must be read in the backdrop of Section 2(2) of  

the Arbitration Act, 1996. Section 2(2) of the aforesaid Act  

provides that this part shall apply where the place of  

arbitration is in India. Section 2(5) takes this a step further  

and holds that this Part shall apply to all arbitrations and  

proceedings relating thereto, where the seat is in India  [a  

-  - 77

Page 78

corollary of Section 2(2)] and if it is not a statutory arbitration  

or subject of an agreement between India and any other  

country. The exception of statutory enactments was necessary  

in terms of the last part of sub-clause (4), which provides for  

non application of this Part to statutory arbitrations in case of  

inconsistency. Thus, barring the statutory enactments as  

provided for under Section 2(4) of the Arbitration Act, 1996  

and arbitrations pursuant to international agreement, all other  

arbitration proceedings held in India shall be subject to Part I  

of the said Act. Accordingly, the phrase ‘all arbitrations’ in  

Section 2(5) means that Part I applies to all where Part I is  

otherwise applicable. Thus, the provision has to be read as a  

part of the whole chapter for its correct interpretation and not  

as a stand alone provision. There is no indication in      Section  

2(5) that it would apply to arbitrations which are not held in  

India.  

85. In view of the aforesaid observations, we have no  

doubt that the provisions of Section 2(4) and Section 2(5)  

would not be applicable to arbitrations which are covered by  

Part II of the Arbitration Act, 1996, i.e. the arbitrations which  

take place outside India. We, therefore, see no inconsistency  

between Sections 2(2), 2(4) and 2(5). For the aforesaid reasons,  

-  - 78

Page 79

we are unable to agree with the conclusion in Bhatia  

International that limiting the applicability of part I to  

arbitrations that take place in India, would make Section 2(2)  

in conflict with Sections 2(4) and 2(5).  

Does     Section     2(7)     indicate     that     Part     I     applies     to    arbitrations     held     outside     India?   

86. We have earlier noticed the very elaborate  

submissions made by the learned senior counsel on the  

rationale, scope, and application of Section 2(7), to arbitrations  

having a seat outside India.  

87. Having considered the aforesaid submissions, we  

are of the opinion that the views expressed by the learned  

counsel for the appellants are not supported by the provisions  

of the Arbitration Act, 1996. Section 2(7) of the Arbitration Act,  

1996 reads thus:

“An arbitral award made under this Part shall be  considered as a domestic award.”

88. In our opinion, the aforesaid provision does not, in  

any manner, relax the territorial principal adopted by  

Arbitration Act, 1996. It certainly does not introduce the  

concept of a delocalized arbitration into the Arbitration Act,  

1996. It must be remembered that Part I of the Arbitration Act,  

-  - 79

Page 80

1996 applies not only to purely domestic arbitrations, i.e.,  

where none of the parties are in any way “foreign” but also to  

“international commercial arbitrations” covered within Section  

2(1)(f)  held in India. The term “domestic award” can be used in  

two senses: one to distinguish it from “international award”,  

and the other to distinguish it from a “foreign award”.  It must  

also be remembered that “foreign award”  may well be a  

domestic award in the country in which it is rendered. As the  

whole of the Arbitration Act, 1996 is designed to give different  

treatments to the awards made in India and those made  

outside India, the distinction is necessarily to be made between  

the terms “domestic awards”  and “foreign awards”.  The  

Scheme of the Arbitration Act, 1996 provides that Part I shall  

apply to both “international arbitrations”  which take place in  

India as well as “domestic arbitrations” which would normally  

take place in India. This is clear from a number of provisions  

contained in the Arbitration Act, 1996 viz. the Preamble of the  

said Act; proviso and the explanation to Section 1(2); Sections  

2(1)(f); 11(9), 11(12); 28(1)(a) and  28(1)(b). All the aforesaid  

provisions, which incorporate the term “international”, deal  

with pre-award situation.  The term “international award” does  

not occur in Part I at all.  Therefore, it would appear that the  

-  - 80

Page 81

term “domestic award” means an award made in India whether  

in a purely domestic context, i.e., domestically rendered award  

in a domestic arbitration or in the international context, i.e.,  

domestically rendered award in an international arbitration.  

Both the types of awards are liable to be challenged under  

Section 34 and are enforceable under Section 36 of the  

Arbitration Act, 1996.  Therefore, it seems clear that the object  

of Section 2(7) is to distinguish the domestic award covered  

under Part I of the Arbitration Act, 1996 from the “foreign  

award” covered under Part II of the aforesaid Act; and not to  

distinguish the “domestic award” from an “international award”  

rendered in India. In other words, the provision highlights, if  

any thing, a clear distinction between Part I and Part II as  

being applicable in completely different fields and with no  

overlapping provisions.  

89. That Part I and Part II are exclusive of each other is  

evident also from the definitions section in Part I and Part II.  

Definitions contained in Section 2(i)(a) to (h) are limited to  Part  

I. The opening line which provides “In this part, unless the  

context otherwise requires……”, makes this perfectly clear.  

Similarly, Section 44 gives the definition of a foreign award for  

the purposes of Part II (Enforcement of Certain Foreign  

-  - 81

Page 82

Awards); Chapter I (New York Convention Awards). Further,  

Section 53 gives the interpretation of a foreign award for the  

purposes of Part II (Enforcement of Certain Foreign Awards);  

Chapter II (Geneva Convention Awards).  From the aforesaid,  

the intention of the Parliament is clear that there shall be no  

overlapping between Part I and Part II of the Arbitration Act,  

1996.  The two parts are mutually exclusive of each other.  To  

accept the submissions made by the learned counsel for the  

appellants would be to convert the “foreign award” which falls  

within Section 44, into a domestic award by virtue of the  

provisions contained under Section 2(7) even if the arbitration  

takes place outside India or is a foreign seated arbitration, if  

the law governing the arbitration agreement is by choice of the  

parties stated to be the Arbitration Act, 1996.  This, in our  

opinion, was not the intention of the Parliament.  The  

territoriality principle of the Arbitration Act, 1996, precludes  

Part I from being applicable to a foreign seated arbitration,  

even if the agreement purports to provide that the Arbitration  

proceedings will be governed by the Arbitration Act, 1996.

90. The additional submission of Mr. Sorabjee is that  

Section 9-B of the 1961 Act, which was in negative terms, has  

been  re-enacted as Section 2(7) of the Arbitration Act, 1996 in  

-  - 82

Page 83

positive terms. Section 9-B of the 1961 Act, was as under:

“9. Saving – Nothing in this Act shall –  ………………………………………………. (b) apply to any award made on an arbitration  agreement governed by the law of India.”

91. We are of the opinion that the Section has been  

intentionally deleted, whereas many other provisions of the  

1961 Act have been retained in the Arbitration Act, 1996.  If  

the provision were to be retained, it would have been placed in  

Part II of the Arbitration Act, 1996.  In our opinion, there is no  

link between Section 2(7) of the Arbitration Act, 1996, with the  

deleted Section 9-B of the 1961 Act.  It was by virtue of the  

aforesaid provision that the judgments in Singer Company &  

Ors. (supra) and ONGC v. Western Company of North  

America (supra) were rendered.  In both the cases the foreign  

awards made outside India were set aside, under the 1940 Act.  

By deletion of Section 9-B of the 1961 Act, the judgments have  

been rendered irrelevant under the Arbitration Act, 1996.  

Having removed the mischief created by the aforesaid  

provision, it cannot be the intention of the Parliament to  

reintroduce it, in a positive form as Section 2(7) of the  

Arbitration Act, 1996. We, therefore, see no substance in the  

additional submission of Mr. Sorabjee.

92. We agree with Mr. Salve that Part I only applies  

-  - 83

Page 84

when the seat of arbitration is in India, irrespective of the kind  

of arbitration.  Section 2(7) does not indicate that Part I is  

applicable to arbitrations held outside India.

93. We are, therefore, of the opinion that Section 2(7)  

does not alter the proposition that Part I applies only where the  

“seat” or “place” of the arbitration is in India.  

94. It appears to us that provision in Section 2(7) was  

also necessary to foreclose a rare but possible scenario (as  

canvassed by Mr. Gopal Subramanium) where two foreigners  

who arbitrate in India, but under a Foreign Arbitration Act,  

could claim that the resulting award would be a “non-

domestic”  award.  In such a case, a claim could be made to  

enforce the award in India, even though the seat of arbitration  

is also in India.  This curious result has occurred in some  

cases in other jurisdictions, e.g., U.S.A.  In the case of  

Bergesen Vs. Joseph     Muller     Corporation  36  , the Court held an  

award made in the State of New York between two foreign  

parties is to be considered as a non-domestic award within the  

meaning of the New York Convention and its implementing  

legislation. Section 2(7), in our opinion, is enacted to reinforce  

the territorial criterion by providing that, when two foreigners  

arbitrate in India, under a Foreign Arbitration Act, the  

36  710 F.2d 928

-  - 84

Page 85

provisions of Part I will apply.  Indian Courts being the  

supervisory Courts, will exercise control and regulate the  

arbitration proceedings, which will produce a “domestically  

rendered international commercial award”. It would be a “foreign  

award”  for the purposes of enforcement in a country other  

than India. We, therefore, have no hesitation in rejecting the  

submissions made by the learned senior counsel for the  

appellants, being devoid of merit.  

Party     Autonomy   

95. Learned counsel for the appellants have submitted  

that Section 2(1)(e), Section 20 and Section 28 read with  

Section 45 and Section 48(1)(e) make it clear that Part I is not  

limited only to arbitrations which take place in India. These  

provisions indicate that Arbitration Act, 1996 is subject matter  

centric and not exclusively seat centric. Therefore, “seat” is not  

the “centre of gravity” so far as the Arbitration Act, 1996 is  

concerned. We are of the considered opinion that the aforesaid  

provisions have to be interpreted by keeping the principle of  

territoriality at the forefront. We have earlier observed that  

Section 2(2) does not make Part I applicable to arbitrations  

seated or held outside India.  In view of the expression used in  

-  - 85

Page 86

Section 2(2), the maxim expressum facit cessare tacitum, would  

not permit by interpretation to hold that Part I would also  

apply to arbitrations held outside the territory of India.  The  

expression “this Part shall apply where the place of arbitration  

is in India” necessarily excludes application of Part I to  

arbitration seated or held outside India.  It appears to us that  

neither of the provisions relied upon by the learned counsel for  

the appellants would make any section of Part I applicable to  

arbitration seated outside India. It will be apposite now to  

consider each of the aforesaid provisions in turn.    Section 2(1)

(e) of the Arbitration Act, 1996 reads as under:

“2. Definitions

(1) In this Part, unless the context otherwise  requires – …………………….

(e) “Court”  means the principal Civil Court of  original jurisdiction in a district, and includes the  High Court in exercise of its ordinary original civil  jurisdiction, having jurisdiction to decide the  questions forming the subject matter of the  arbitration if the same had been the subject matter  of a suit, but does not include any civil court of a  grade inferior to such principal Civil Court, or any  Court of Small Causes.”  

96. We are of the opinion, the term “subject matter of  

the arbitration”  cannot be confused with “subject matter of the  

-  - 86

Page 87

suit”. The term “subject matter” in Section 2(1)(e) is confined to  

Part I. It has a reference and connection with the process of  

dispute resolution. Its purpose is to identify the courts having  

supervisory control over the arbitration proceedings. Hence, it  

refers to a court which would essentially be a court of the seat  

of the arbitration process. In our opinion, the provision in  

Section 2(1)(e) has to be construed keeping in view the  

provisions in Section 20 which give recognition to party  

autonomy. Accepting the narrow construction as projected by  

the learned counsel for the appellants would, in fact, render  

Section 20 nugatory. In our view, the legislature has  

intentionally given jurisdiction to two courts i.e. the court  

which would have jurisdiction where the cause of action is  

located and the courts where the arbitration takes place. This  

was necessary as on many occasions the agreement may  

provide for a seat of arbitration at a place which would be  

neutral to both the parties. Therefore, the courts where the  

arbitration takes place would be required to exercise  

supervisory control over the arbitral process. For example, if  

the arbitration is held in Delhi, where neither of the parties are  

from Delhi, (Delhi having been chosen as a neutral place as  

between a party from Mumbai and the other from Kolkata) and  

-  - 87

Page 88

the tribunal sitting in Delhi passes an interim order under  

Section 17 of the Arbitration Act, 1996, the appeal against  

such an interim order under Section 37 must lie to the Courts  

of Delhi being the Courts having supervisory jurisdiction over  

the arbitration proceedings and the tribunal. This would be  

irrespective of the fact that the obligations to be performed  

under the contract were to be performed either at Mumbai or  

at Kolkata, and only arbitration is to take place in Delhi. In  

such circumstances, both the Courts would have jurisdiction,  

i.e., the Court within whose jurisdiction the subject matter of  

the suit is situated and the courts within the jurisdiction of  

which the dispute resolution, i.e., arbitration is located.

97. The definition of Section 2(1)(e) includes “subject  

matter of the arbitration” to give jurisdiction to the courts where  

the arbitration takes place, which otherwise would not exist.  

On the other hand, Section 47 which is in Part II of the  

Arbitration Act, 1996 dealing with enforcement of certain  

foreign awards has defined the term “court” as a court having  

jurisdiction over the subject-matter of the award. This has a  

clear reference to a court within whose jurisdiction the  

asset/person is located, against which/whom the enforcement  

of the international arbitral award is sought. The provisions  

-  - 88

Page 89

contained in Section 2(1)(e) being purely jurisdictional in  

nature can have no relevance to the question whether Part I  

applies to arbitrations which take place outside India.            

98. We now come to Section 20, which is as under:-

“20. Place of arbitration –

(1) The parties are free to agree on the place of  arbitration.

(2) Failing any agreement referred to in sub-section  (1), the place of arbitration shall be determined  by the arbitral tribunal having regard to the  circumstances of the case, including the  convenience of the parties.  

(3) Notwithstanding sub-section (1) or sub-section  (2), the arbitral tribunal may, unless otherwise  agreed by the parties, meet at any place it  considers appropriate for consultation among its  members, for hearing witnesses, experts or the  parties, or for inspection of documents, good or  other property.”    

A plain reading of Section 20 leaves no room for doubt that  

where the place of arbitration is in India, the parties are free to  

agree to any “place” or “seat” within India, be it Delhi, Mumbai  

etc. In the absence of the parties’  agreement thereto, Section  

20(2) authorizes the tribunal to determine the place/seat of  

such arbitration. Section 20(3) enables the tribunal to meet at  

any place for conducting hearings at a place of convenience in  

matters such as consultations among its members for hearing  

-  - 89

Page 90

witnesses, experts or the parties.  

99. The fixation of the most convenient “venue” is taken  

care of by Section 20(3).  Section 20, has to be read in the  

context of Section 2(2), which places a threshold limitation on  

the applicability of Part I, where the place of arbitration is in  

India.  Therefore, Section 20 would also not support the  

submission of the extra-territorial applicability of Part I, as  

canvassed by the learned counsel for the appellants, so far as  

purely domestic arbitration is concerned.  

100.  True, that in an international commercial  

arbitration, having a seat in India, hearings may be  

necessitated outside India.  In such circumstances, the hearing  

of the arbitration will be conducted at the venue fixed by the  

parties, but it would not have the effect of changing the seat of  

arbitration which would remain in India. The legal position in  

this regard is summed up by Redfern and Hunter, The Law  

and Practice of International Commercial Arbitration (1986) at  

Page 69 in the following passage under the heading “The Place  

of Arbitration”:-

“The preceding discussion has been on the basis  that there is only one “place”  of arbitration.  This  will be the place chosen by or on behalf of the  

-  - 90

Page 91

parties; and it will be designated in the arbitration  agreement or the terms of the reference or the  minutes of proceedings or in some other way as the  place or “seat”  of the arbitration.  This does not  mean, however, that the arbitral tribunal must hold  all its meetings or hearings at the place of  arbitration.  International commercial arbitration  often involves people of many different nationalities,  from many different countries.  In these  circumstances, it is by no means unusual for an  arbitral tribunal to hold meetings – or even hearings  –  in a place other than the designated place of  arbitration, either for its own convenience or for the  convenience of the parties or their witnesses…   It  may be more convenient for an arbitral tribunal  sitting in one country to conduct a hearing in  another country - for instance, for the purpose of  taking evidence…..  In such circumstances, each  move of the arbitral tribunal does not of itself mean  that the seat of arbitration changes.  The seat of the  arbitration remains the place initially agreed by or  on behalf of the parties.”   

This, in our view, is the correct depiction of the practical  

considerations and the distinction between “seat”  (Section  

20(1) and 20(2)) and “venue” (Section 20(3)).  We may point out  

here that the distinction between “seat” and “venue” would be  

quite crucial in the event, the arbitration agreement designates  

a foreign country as the “seat”/”place”  of the arbitration and  

also select the Arbitration Act, 1996 as the curial law/law  

governing the arbitration proceedings.  It would be a matter of  

construction of the individual agreement to decide whether:

(i) The designated foreign “seat”  would  

be read as in fact only providing for  

-  - 91

Page 92

a “venue”  / “place”  where the  

hearings would be held, in view of  

the choice of  Arbitration Act, 1996  

as being the curial law – OR

(ii) Whether the specific designation of a foreign  

seat, necessarily carrying with it the choice of  

that country’s Arbitration / curial law, would  

prevail over and subsume the conflicting  

selection choice by the parties of the  

Arbitration Act, 1996.

ONLY if the agreement of the parties is construed to  

provide for the “seat”  / “place”  of Arbitration being in  

India –  would Part I of the Arbitration Act, 1996 be  

applicable.  If the agreement is held to provide for a “seat”  

/ “place” outside India, Part I would be inapplicable to the  

extent inconsistent with the arbitration law of the seat,  

even if the agreement purports to provide that the  

Arbitration Act, 1996 shall govern the arbitration  

proceedings.  

101. How complex the situation can become can be best  

-  - 92

Page 93

demonstrated by looking at some of the prominent decisions on  

the factors to be taken into consideration in construing the  

relevant provisions of the contract/arbitration clause.  

102. In Naviera Amazonica Peruana S.A. (supra), the  

Court of Appeal, in England considered the agreement which  

contained a clause providing for the jurisdiction of 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 English Law and the procedural law of Arbitration  

shall be English Law.   

103. The Court of Appeal summarized the State of the  

jurisprudence on this topic.  Thereafter, the conclusions which  

arose from the material were summarized 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).”

104. It is observed that the problem about all these  

formulations, including the third, is that they elide the  

-  - 93

Page 94

distinction between the legal localization of an arbitration on  

the one hand and the appropriate or convenient geographical  

locality for hearings of the arbitration on the other hand.  

105.  On the facts of the case, it was observed that since  

there was no contest on Law 1 and Law 2, the entire issue  

turned on Law 3, “The law governing the conduct of the  

arbitration.  This is usually referred to as the curial or  

procedural law, or the lex fori.”  Thereafter, the Court  

approvingly quoted the following observation from Dicey &  

Morris on the Conflict of Laws (11th Edition): “English Law does  

not recognize the concept of a de-localised”  arbitration or of  

“arbitral procedures floating in the transnational firmament,  

unconnected with any municipal system of law”.  It is further  

held that “accordingly every arbitration must have a “seat”  or  

“locus arbitri” or “forum” which subjects its procedural rules to  

the municipal law which is there in force”.  The Court  

thereafter culls out the following principle “Where the parties  

have failed to choose the law governing the arbitration  

proceedings, those proceedings must be considered, at any  

rate prima facie, as being governed by the law of the country in  

which the arbitration is held, on the ground that it is the  

country most closely connected with the proceedings”.  The  

-  - 94

Page 95

aforesaid classic statement of the Conflict of Law Rules as  

quoted in Dicey & Morris on the Conflict of Laws (11th Edition)  

Volume 1, was approved by the House of Lords in James  

Miller     &     Partners   Vs. Whitworth     Street     Estates    

(Manchester)     Ltd.  37  .      Mr. Justice Mustill in the case of Black  

Clawson     International     Ltd.   Vs. PapierIrke     Waldhof-Aschaf-   

fenburg     A.G.  38  , a little later characterized the same proposition  

as “the law of the place where the reference is conducted, the  

lex fori”.  The Court also recognized the proposition that “there  

is equally no reason in theory which precludes parties to agree  

that an arbitration shall be held at a place or in country X but  

subject to the procedural laws of Y”.  But it points out that in  

reality parties would hardly make such a decision as it would  

create enormous unnecessary complexities.  Finally it is  

pointed out that it is necessary not to confuse the legal “seat” of  

an arbitration with the geographically convenient place or  

places for holding hearings.   

106. On examination of the facts in that case, the Court  

of Appeal observed that there is nothing surprising in  

concluding that these parties intended that any dispute under  

37  [1970] 1 Lloyd’s Rep. 269; [1970] A.C.583

38  [1981] 2 Lloyd’s Rep. 446 at P. 453

-  - 95

Page 96

this policy, should be arbitrated in London.  But it would  

always be open to the Arbitral Tribunal to hold hearings in  

Lima if this were thought to be convenient, even though the  

seat or forum of the arbitration would remain in London.   

107. A similar situation was considered by the High  

Court of Justice Queen’s Bench Division Technology and  

Construction Court in Braes of Doune Wind Farm (Scotland)  

Limited v Alfred McAlpine Business Services Limited  

(supra).  In this case the Court considered two applications  

relating to the First Award of an arbitrator.  The award related  

to an EPC (Engineering, Procurement and Construction)  

Contract dated 4th November, 2005 (“the EPC Contract”)  

between the Claimant (“the Employer”) and the Defendant (“the  

Contractor”) whereby the Contractor undertook to carry out  

works in connection with the provision of 36 wind turbine  

generators (the “WTGs”) at a site some 18 kilometres from  

Stirling in Scotland.  This award dealt with enforceability of the  

clauses of the EPC Contract which provided for liquidated  

damages for delay.  The claimant applied for leave to appeal  

against this award upon a question of law whilst the Defendant  

sought, in effect, a declaration that the Court had no  

jurisdiction to entertain such an application and for leave to  

-  - 96

Page 97

enforce the award. The Court considered the issue of  

jurisdiction which arose out of application of Section 2 of the  

(English) Arbitration Act, 1996 which provides that - “(1) The  

provisions of this Part apply where the seat of the arbitration is  

in England and Wales or Northern Ireland.”  The Court notices  

the singular importance of determining the location of  

“juridical seat”  in terms of Section 3, for the purposes of  

Section 2, in the following  words:-

“I must determine what the parties agreed was  the “seat”  of the arbitration for the purposes of  Section     2     of     the     Arbitration     Act     1996.   This means by  Section     3     what the parties agreed was the “juridical”  seat. The word “juridical”  is not an irrelevant word  or a word to be ignored in ascertaining what the  “seat” is. It means and connotes the administration  of justice so far as the arbitration is concerned. It  implies that there must be a country whose job it is  to administer, control or decide what control there is  to be over an arbitration.”   

108. Thus, it would be evident that if the “juridical seat”  

of the arbitration was in Scotland, the English Courts would  

have no jurisdiction to entertain an application for leave to  

appeal.  The Contractor argued that the seat of the arbitration  

was Scotland whilst the Employer argued that it was England.  

There were to be two contractors involved with the project.  

109.  The material Clauses of the EPC Contract were:

1.4.1. The Contract shall be governed by and construed  

-  - 97

Page 98

in accordance with the laws of England and Wales and, subject  

to Clause 20.2 (Dispute Resolution), the Parties agree that the  

courts of England and Wales have exclusive jurisdiction to  

settle any dispute arising out of or in connection with the  

contract.

(a) ... any dispute or difference between the  

Parties to this Agreement arising out of or in  

connection with this Agreement shall be  

referred to arbitration.

(b) Any reference to arbitration shall be to a  

single arbitrator…  and conducted in  

accordance with the Construction Industry  

Model Arbitration Rules February 1998  

Edition, subject to this Clause (Arbitration  

Procedure)…

(c)This arbitration agreement is subject to English Law and  

the seat of the arbitration shall be Glasgow, Scotland.  

Any such reference to arbitration shall be deemed to  

be a reference to arbitration within the meaning of the  

Arbitration Act, 1996 or any statutory re-enactment.”

110. The Arbitration was to be conducted under the  

Arbitration Rules known colloquially as the “CIMAR Rules”.  

-  - 98

Page 99

Rule 1.1 of the Rules provided that:

“These Rules are to be read consistently with the  Arbitration Act 1996 (the Act), with common  expressions having the same meaning.”   

Rule 1.6 applied:

(a) a single arbitrator is to be appointed, and

(b) the seat of the arbitration is in England and Wales or  

Northern Ireland.

111. The court was informed by the parties in arguments that  

Scottish Court’s powers of control or intervention would be, at  

the very least, seriously circumscribed by the parties’  

agreement in terms as set out in paragraph 6 of the judgment.  

It was further indicated by the counsel that the Scottish  

Court’s powers of intervention might well be limited to cases  

involving such extreme circumstances as the dishonest  

procurement of an award.    

112.   In construing the EPC, the court relied upon the  

principles stated by the Court of Appeal in Naviera Amazonica  

Peruana SA (supra).  

113. Upon consideration of the entire material, the Court  

formed the view that it does have jurisdiction to entertain an  

application by either party to the contract in question under  

Section 69 of the (English) Arbitration Act, 1996. The court  

gave the following reasons for the decision:–

-  - 99

Page 100

(a) One needs to consider what, in substance, the  

parties agreed was the law of the country which would  

juridically control the arbitration.

(b) I attach particular importance to Clause 1.4.1. The  

parties agreed that essentially the English (and Welsh)  

Courts have “exclusive jurisdiction”  to settle disputes.  

Although this is “subject to”  arbitration, it must and  

does mean something other than being mere verbiage. It  

is a jurisdiction over disputes and not simply a court in  

which a foreign award may be enforced. If it is in  

arbitration alone that disputes are to be settled and the  

English Courts have no residual involvement in that  

process, this part of Clause 1.4.1 is meaningless in  

practice. The use of the word “jurisdiction”  suggests  

some form of control.   

(c) The second part of Clause 1.4.1 has some real  

meaning if the parties were agreeing by it that, although  

the agreed disputes resolution process is arbitration, the  

parties agree that the English Court retains such  

jurisdiction to address those disputes as the law of  

England and Wales permits. The Arbitration Act, 1996  

permits and requires the Court to entertain applications  

-  - 100

Page 101

under Section 69 for leave to appeal against awards  

which address disputes which have been referred to  

arbitration. By allowing such applications and then  

addressing the relevant questions of law, the Court will  

settle such disputes; even if the application is refused,  

the court will be applying its jurisdiction under the  

Arbitration Act, 1996 and providing resolution in  

relation to such disputes.

(d) This reading of Clause 1.4.1 is consistent with  

Clause 20.2.2 (c) which confirms that the arbitration  

agreement is subject to English Law and that the  

“reference”  is “deemed to be a reference to arbitration  

within the meaning of the Arbitration Act, 1996.”  This  

latter expression is extremely odd unless the parties  

were agreeing that any reference to arbitration was to be  

treated as a reference to which the Arbitration Act, 1996  

was to apply. There is no definition in the Arbitration  

Act, 1996 of a “reference to arbitration”, which is not a  

statutory term of art. The parties presumably meant  

something in using the expression and the most obvious  

meaning is that the parties were agreeing that the  

Arbitration Act, 1996 should apply to the reference  

-  - 101

Page 102

without qualification.

(e)   Looked at in this light, the parties’  express  

agreement that the “seat”  of arbitration was to be  

Glasgow, Scotland must relate to the place in which the  

parties agreed that the hearings should take place.  

However, by all the other references the parties were  

agreeing that the curial law or law which governed the  

arbitral proceedings establish that, prima facie and in  

the absence of agreement otherwise, the selection of a  

place or seat for an arbitration will determine what the  

curial law or “lex fori” or “lex arbitri” will be, we consider  

that, where in substance the parties agree that the laws  

of one country will govern and control a given  

arbitration, the place where the arbitration is to be  

heard will not dictate what the governing or controlling  

law will be.   

(f)    In the context of this particular case, the fact that,  

as both parties seemed to accept in front of me, the  

Scottish Courts would have no real control or interest in  

the arbitral proceedings other than in a criminal  

context, suggests that they can not have intended that  

the arbitral proceedings were to be conducted as an  

-  - 102

Page 103

effectively “delocalized” arbitration or in a “transnational  

firmament”, to borrow Lord Justice Kerr’s words in the  

Naviera Amazonica case.

(g) The CIMAR Rules are not inconsistent with my view.  

Their constant references to the Arbitration Act, 1996  

suggest that the parties at least envisaged the possibility  

that the Courts of England and Wales might play some  

part in policing any arbitration. For instance, Rule 11.5  

envisages something called “the Court”  becoming  

involved in securing compliance with a peremptory order  

of the arbitrator. That would have to be the English  

Court, in practice.”               

114. These observations clearly demonstrate the detailed  

examination which is required to be undertaken by the court  

to discern from the agreement and the surrounding  

circumstances the intention of the parties as to whether a  

particular place mentioned refers to the “venue” or “seat” of the  

arbitration. In that case, the Court, upon consideration of the  

entire material, concluded that Glasgow was a reference to the  

“venue” and the “seat”  of the arbitration was held to be in  

England. Therefore, there was no supplanting of the Scottish  

Law by the English Law, as both the seat under Section 2 and  

-  - 103

Page 104

the “juridical seat”  under Section 3, were held to be in  

England. Glasgow being only the venue for holding the  

hearings of the arbitration proceedings. The Court rather  

reiterated the principle that the selection of a place or seat for  

an arbitration will determine what the “curial law” or “lex fori”  

or “lex arbitri”  will be. It was further concluded that where in  

substance the parties agreed that the laws of one country will  

govern and control a given arbitration, the place where the  

arbitration is to be heard  will not dictate what the governing  

law or controlling law will be. In view of the above, we are of  

the opinion that the reliance placed upon this judgment by  

Mr.Sundaram is wholly misplaced.

115. The aforesaid ratio has been followed in Shashoua  

& Ors. (supra).  In this case, the Court was concerned with the  

construction of the shareholders’  agreement between the  

parties, which provided that “the venue of the arbitration shall  

be London, United Kingdom”.  Whilst providing that the  

arbitration proceedings should be conducted in English in  

accordance with ICC Rules and that the governing law of the  

shareholders’ agreement itself would be the law of India.  The  

claimants made an application to the High Court in New Delhi  

seeking interim measures of protection under Section 9 of the  

-  - 104

Page 105

Arbitration Act, 1996, prior to the institution of arbitration  

proceedings.  Following the commencement of the arbitration,  

the defendant and the joint venture company raised a  

challenge to the jurisdiction of the arbitral tribunal, which the  

panel heard as a preliminary issue.  The tribunal rejected the  

jurisdictional objection.  The tribunal then made a cost award  

ordering the defendant to pay $140,000 and £172,373.47.  The  

English Court gave leave to the claimant to enforce the costs  

award as a judgment.  The defendant applied to the High Court  

of Delhi under Section 34(2)(iv) of the Arbitration Act, 1996 to  

set aside the costs award.  The claimant had obtained a  

charging order, which had been made final, over the  

defendant’s property in the UK.  The defendant applied to the  

Delhi High Court for an order directing the claimants not to  

take any action to execute the charging order, pending the final  

disposal of the Section 34 petition in Delhi seeking to set aside  

the costs award. The defendant had sought unsuccessfully to  

challenge the costs award in the Commercial Court under  

Section 68 and Section 69 of the 1996 Act (U.K.) and to set  

aside the order giving leave to enforce the award.  Examining  

the fact situation in the case, the Court observed as follows:-

“The basis for the court’s grant of an anti-suit  injunction of the kind sought depended upon the  

-  - 105

Page 106

seat of the arbitration.  An agreement as to the seat  of an arbitration brought in the law of that country as  the curial law and was analogous to an exclusive  jurisdiction clause.  Not only was there agreement to  the curial law of the seat, but also to the Courts of  the seat having supervisory jurisdiction over the  arbitration, so that, by agreeing to the seat, the  parties agreed that any challenge to an interim or  final award was to be made only in the courts of the  place designated as the seat of the arbitration.

Although, ‘venue’  was not synonymous with ‘seat’,  in an arbitration clause which provided for  arbitration to be conducted in accordance with the  Rules of the ICC in Paris (a supranational body of  rules), a provision that ‘the venue of arbitration  shall be London, United Kingdom’  did amount to  the designation of a juridical seat…….”

In Paragraph 54, it is further observed as follows:-

“There was a little debate about the possibility of the  issues relating to the alleged submission by the  claimants to the jurisdiction of the High Court of  Delhi being heard by that court, because it was best  fitted to determine such issues under Indian Law.  Whilst I found this idea attractive initially, we are  persuaded that it would be wrong in principle to  allow this and that it would create undue practical  problems in any event.  On the basis of what I have  already decided, England is the seat of the arbitration  and since this carries with it something akin to an  exclusive jurisdiction clause, as a matter of principle  the foreign court should not decide matters which are  for this court to decide in the context of an anti-suit  injunction.”[emphasis supplied]

116.     In making the aforesaid observations, the Court  

relied on judgments of the Court of Appeal in C Vs. D  39  .    Here  

the Court of Appeal in England was examining an appeal by  

39  [2007] EWCA Civ 1282 (CA)

-  - 106

Page 107

the defendant insurer from the judgment of Cooke, J. granting  

an anti-suit injunction preventing it from challenging an  

arbitration award in the U.S. Courts.  The insurance policy  

provided “any dispute arising under this policy shall be finally  

and fully determined in London, England under the provisions  

of the English Arbitration Act, 1950 as amended”.  However, it  

was further provided that “this policy shall be governed by and  

construed in accordance with the internal laws of the State of  

New York….”.  A partial award was made in favour of the  

claimants.  It was agreed that this partial award is, in English  

Law terms, final as to what it decides.   The defendant sought  

the tribunal’s withdrawal of its findings. The defendant also  

intimated its intention to apply to a Federal Court applying US  

Federal Arbitration Law governing the enforcement of arbitral  

award, which was said to permit “vacatur” of an award where  

arbitrators have manifestly disregarded the law.  It was in  

consequence of such intimation that the claimant sought and  

obtained an interim anti-suit injunction.  The Judge held that  

parties had agreed that any proceedings seeking to attack or  

set aside the partial award would only be those permitted by  

English Law.  It was not, therefore, permissible for the  

defendant to bring any proceedings in New York or elsewhere  

-  - 107

Page 108

to attack the partial award.  The Judge rejected the arguments  

to the effect that the choice of the law of New York as the  

proper law of the contract amounted to an agreement that the  

law of England should not apply to proceedings post award.  

The Judge also rejected a further argument that the separate  

agreement to arbitrate contained in the Condition V(o) of the  

policy was itself governed by New York Law so that proceedings  

could be instituted in New York. The Judge granted the  

claimant a final injunction.  The Court of Appeal noticed the  

submission on behalf of the defendant as follows:-

“14.  The main submission of Mr Hirst QC for the  defendant insurer was that the judge had been  wrong to hold that the arbitration agreement itself  was governed by English law merely because the  seat of the arbitration was London. He argued that  the arbitration agreement itself was silent as to its  proper law but that its proper law should follow the  proper law of the contract as a whole, namely New  York law, rather than follow from the law of the seat  of the arbitration namely England. The fact that the  arbitration itself was governed by English  procedural law did not mean that it followed that the  arbitration agreement itself had to be governed by  English law. The proper law of the arbitration  agreement was that law with which the agreement  had the most close and real connection; if the  insurance policy was governed by New York law, the  law with which the arbitration agreement had its  closest and most real connection was the law of New  York. It would then follow that, if New York law  permitted a challenge for manifest disregard of the  law, the court in England should not enjoin such a  challenge.”  

-  - 108

Page 109

The Court of Appeal held:-

“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 Arbitration Act, 1996 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 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.  

17. It follows from this that a choice of seat for the  arbitration must be a choice of forum for remedies  seeking to attack the award”……….

-  - 109

Page 110

117. On the facts of the case, the Court held that the  

seat of the arbitration was in England and accordingly  

entertained the challenge to the award.  Again in Union     of    

India Vs. McDonnell     Douglas     Corp.   (supra), the proposition  

laid down in Naviera Amazonica Peruana S.A. (supra) was  

reiterated.  In this case, the agreement provided that:-

“The arbitration shall be conducted in accordance  with the procedure provided in the Indian  Arbitration Act of 1940 or any reenactment or  modification thereof. The arbitration shall be  conducted in the English language. The award of the  Arbitrators shall be made by majority decision  and shall be final and binding on the Parties hereto.  The seat of the arbitration proceedings shall be  London, United Kingdom.”

118.  Construing the aforesaid clause, the Court held as  

follows:-

“On the contrary, for the reasons given, it seems to  me that by their agreement the parties have chosen  English law as the law to govern their arbitration  proceedings, while contractually importing from the  Indian Act those provisions of that Act which are  concerned with the internal conduct of their  arbitration and which are not inconsistent with the  choice of English arbitral procedural law.”

119. The same question was again considered by the  

High Court of Justice, Queen’s Bench Division, Commercial  

Court (England) in Sulamerica CIA Nacional de Seguros SA  

-  - 110

Page 111

v. Enesa Engenharia SA –  Enesa.40 The 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  

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.” The court thereafter makes a  

reference to the observations made in the case of C.     vs.     D   by  

the High Court as well as the Court of Appeal. In Paragraph  

12, the observations made have particular relevance which are  

as under:

“In the Court of Appeal, Longmore LJ, with whom  the other two Lord Justices agreed, decided (again  obiter) that, where there was no express choice of  

40  [2012 WL 14764].

-  - 111

Page 112

law for the arbitration agreement, the law with  which that agreement had its closest and most real  connection was more likely to be the law of the seat  of arbitration than the law of the underlying  contract. He referred to Mustill J. (as he then was)  in Black Clawsen International Limited v  Papierwerke Waldhof-Aschaffenburg AG [1981] 2  LLR 446 as saying that it would be a rare case in  which the law of the arbitration agreement was not  the same as the law of the place or seat of the  arbitration. Longmore LJ also referred to the speech  of Lord Mustill (as he had then become) in Chanel  Tunnel Group Limited vs. Balfour Beatty  Construction Limited [1993] 1 LLR 291 and  concluded that the Law Lord was saying that,  although it was exceptional for the proper law of the  underlying contract to be different from the proper  law of the arbitration agreement, it was less  exceptional (or more common) for the proper law of  that underlying contract to be different from the  curial law, the law of the seat of the arbitration. He  was not expressing any view on the frequency or  otherwise of the law of the arbitration agreement  differing from the law of the seat of the arbitration.  Longmore LJ agreed with Mustill J’s earlier dictum  that it would be rare for the law of the separable  arbitration agreement to be different from the law of  the seat of the arbitration. The reason was “that an  agreement to arbitrate will normally have a closer  and more real connection with the place where the  parties have chose to arbitrate, than with the place  of the law of the underlying contract, in cases where  the parties have deliberately chosen to arbitrate, in  one place, disputes which have arisen under a  contract governed by the law of another place”.     

        120. Upon consideration of the entire matter, it was  

observed that - “In these circumstances it is clear to me that  

the law with which the agreement to arbitrate has its closest  

and most real connection is the law of the seat of arbitration,  

-  - 112

Page 113

namely, the law of England”. (Para 14). It was thereafter  

concluded by the High Court that English Law is the proper  

law of the agreement to arbitrate. (Para 15)

121. The legal position that emerges from a conspectus of all  

the decisions, seems to be, that the choice of another country  

as the seat of arbitration inevitably imports an acceptance that  

the law of that country relating to the conduct and supervision  

of arbitrations will apply to the proceedings.   

122. It would, therefore, follow that if the arbitration  

agreement is found or held to provide for a seat / place of  

arbitration outside India, then the provision that the  

Arbitration Act, 1996 would govern the arbitration  

proceedings, would not make Part I of the Arbitration Act,  

1996 applicable or enable Indian Courts to exercise  

supervisory jurisdiction over the arbitration or the award. It  

would only mean that the parties have contractually imported  

from the Arbitration Act, 1996, those provisions which are  

concerned with the internal conduct of their arbitration and  

which are not inconsistent with the mandatory provisions of  

the English Procedural Law/Curial Law.  This necessarily  

follows from the fact that Part I applies only to arbitrations  

-  - 113

Page 114

having their seat / place in India.     

Section     28     -   

123. It was submitted by the learned counsel for the  

appellants that Section 28 is another indication of the  

intention of the Parliament that Part I of the Arbitration Act,  

1996 was not confined to arbitrations which take place in  

India.  We are unable to accept the submissions made by the  

learned counsel for the parties.  As the heading of the Section  

28 indicates, its only purpose is to identify the rules that would  

be applicable to “substance of dispute”.  In other words, it  

deals with the applicable conflict of law rules.  This section  

makes a distinction between purely domestic arbitrations and  

international commercial arbitrations, with a seat in India.  

Section 28(1)(a) makes it clear that in an arbitration under  

Part I to which Section 2(1)(f) does not apply, there is no choice  

but for the Tribunal to decide “the dispute”  by applying the  

Indian “substantive law applicable to the contract”.  This is  

clearly to ensure that two or more Indian parties do not  

circumvent the substantive Indian law, by resorting to  

arbitrations.  The provision would have an overriding effect  

over any other contrary provision in such contract.  On the  

-  - 114

Page 115

other hand, where an arbitration under Part I is an  

international commercial arbitration within Section 2(1)(f), the  

parties would be free to agree to any other “substantive law”  

and if not so agreed, the “substantive law” applicable would be  

as determined by the Tribunal.  The section merely shows that  

the legislature has segregated the domestic and international  

arbitration.  Therefore, to suit India, conflict of law rules have  

been suitably modified, where the arbitration is in India.  This  

will not apply where the seat is outside India.  In that event,  

the conflict of laws rules of the country in which the arbitration  

takes place would have to be applied.  Therefore, in our  

opinion, the emphasis placed on the expression “where the  

place of arbitration is situated in India”, by the learned senior  

counsel for the appellants, is not indicative of the fact that the  

intention of Parliament was to give an extra-territorial  

operation to Part I of the Arbitration Act, 1996.

Part     II   

124. It was next submitted by the counsel  

for the appellants that even some of the provisions contained  

in Part II would indicate that Part I of the Arbitration Act, 1996  

-  - 115

Page 116

would not be limited to the arbitrations which take place in  

India.  It was pointed out that even though Part II deals  

specifically with recognition and enforcement of certain foreign  

awards yet provision is made for annulment of the award by  

two Courts, i.e., Courts of the country in which the award was  

made or the Courts of the country under the law of which the  

award was made.  This, according to the learned counsel,  

recognizes the concurrent jurisdictions of Courts in two  

countries to set aside the award.  They rely on Section 48(1)(e)  

of the Arbitration Act, 1996, which corresponds to Article V(1)

(e) of the New York Convention.  Mr. Sorabjee has emphasised  

that both these expressions must necessarily be given effect to  

and no part of the Act or section can be disregarded by  

describing the same as a “fossil”.  This is in reply to the  

submission made by Mr. Salve on the basis of the history of  

the inclusion of the term “under the law of which”  in Article  

V(1)(e).  Mr. Sorabjee has emphasised that the word “under the  

law of which”  were specifically inserted in view of the Geneva  

Convention, which limited the jurisdiction to only one Court to  

set aside the award namely “the country in which the award  

was made.”  He, therefore, submits that this specific intention  

must be given effect to.  Not giving effect to the words “under  

-  - 116

Page 117

the law of which the award was made”, will allow many awards  

to go untested.  At this stage, Mr. Sorabjee had relied on  

Reliance Industries Ltd. (supra). We must notice here that  

Mr. Sundaram in his submissions has not gone so far as Mr.  

Sorabjee.  According to Mr. Sundaram, the jurisdiction of a  

domestic Court over an arbitration is neither conferred by the  

New York Convention, nor under Part II, since Part II merely  

deals with circumstances under which the enforcing court may  

or may not refuse to enforce the award.  That circumstance  

includes annulment of proceedings in a competent court, i.e.,  

the Court in the country where the arbitration is held or the  

Court having jurisdiction in the country under the laws of  

which the arbitral disputes have been conducted.  According to  

Mr. Sundaram, providing two such situs for the purposes of  

annulment does not ipso facto amount to conferring of  

jurisdiction to annul, on any domestic Court.  The provision  

only provides that if the annulment proceedings are before  

such Courts, the award may not be enforced.  Therefore, to see  

if an arbitral award can be annulled by the Court of the  

country, one has to look at the jurisdiction of such Courts  

under the domestic law. The relevance of New York Convention  

and Article V(1)(e) ends there, with merely recognizing  

-  - 117

Page 118

possibility of two Courts having jurisdiction to annul an award.  

Mr. Subramanium emphasised that provisions contained in  

Part II can not be said to be a complete code as it necessarily  

makes use of the provisions of Part I.  Since Part I prescribes  

the entire procedure for the conduct of an arbitration and Part  

II is only to give recognition to certain foreign awards, the two  

parts have to be read harmoniously in order to make the  

Indian Arbitration Law a complete code.  He submits that Part  

I can not be read separately from Part II as certain provisions  

of Part I, which are necessary for arbitrations are not covered  

by Part II.  He gives an example of the provision contained in  

Section 45, which empowers the term “judicial authority”  to  

refer parties to arbitration when seized of an action in a  

matter, in respect of which parties have made an agreement as  

referred to in Section 44.  The aforesaid provision contains a  

non-obstante clause.  This clearly indicates that it is  

contemplated by the legislature that provisions of Part I would  

apply to matters covered by Part II.  He, therefore, points out  

that if Part I were to apply only to arbitrations that take place  

in India, then Indian Courts would not be able to grant any  

interim relief under Section 9 to arbitrations which take place  

outside India.  He also points out that there are a number of  

-  - 118

Page 119

other provisions where Indian Courts would render assistance  

in arbitrations taking place outside India.  Learned senior  

counsel has also pointed out the necessity to read Sections 34  

and 48 of the Arbitration Act, 1996 harmoniously.  He points  

out that barring Section 34, which involves the challenge to an  

award, the other provisions in Part I and Part II are facilitative  

in character.  

125.  We are unable to agree with the submission of the  

learned senior counsel that there is any overlapping of the  

provisions in Part I and Part II; nor are the provisions in Part II  

supplementary to Part I.  Rather there is complete segregation  

between the two parts.  

126. Generally speaking, regulation of arbitration  

consists of four steps (a) the commencement of arbitration; (b)  

the conduct of arbitration; (c) the challenge to the award; and  

(d) the recognition or enforcement of the award. In our opinion,  

the aforesaid delineation is self evident in Part I and Part II of  

the Arbitration Act, 1996.  Part I of the Arbitration Act, 1996  

regulates arbitrations at all the four stages. Part II, however,  

regulates arbitration only in respect of commencement and  

recognition or enforcement of the award.  

-  - 119

Page 120

127. In Part I, Section 8 regulates the commencement of  

arbitration in India, Sections 3, 4, 5, 6, 10 to 26, 28 to 33  

regulate the conduct of arbitration, Section 34 regulates the  

challenge to the award, Sections 35 and 36 regulate the  

recognition and enforcement of the award. Sections 1, 2, 7, 9,  

27, 37, 38 to 43 are ancillary provisions that either support  

the arbitral process or are structurally necessary. Thus, it can  

be seen that Part I deals with all stages of the arbitrations  

which take place in India. In Part II, on the other hand, there  

are no provisions regulating the conduct of arbitration nor the  

challenge to the award. Section 45 only empowers the judicial  

authority to refer the parties to arbitration outside India in  

pending civil action. Sections 46 to 49 regulate the recognition  

and enforcement of the award. Sections 44, 50 to 52 are  

structurally necessary.  

128. Thus, it is clear that the regulation of conduct of  

arbitration and challenge to an award would have to be done  

by the courts of the country in which the arbitration is being  

conducted. Such a court is then the supervisory court  

possessed of the power to annul the award. This is in keeping  

with the scheme of the international instruments, such as the  

-  - 120

Page 121

Geneva Convention and the New York Convention as well as  

the UNCITRAL Model Law. It also recognizes the territorial  

principle which gives effect to the sovereign right of a country  

to regulate, through its national courts, an adjudicatory duty  

being performed in its own country. By way of a comparative  

example, we may reiterate the observations made by the Court  

of Appeal, England in C Vs.   D     (supra) wherein it is observed  

that “it follows from this that a choice of seat for the arbitration  

must be a choice of forum for remedies seeking to attack the  

award.” In the aforesaid case, the Court of Appeal had  

approved the observations made in A Vs. B,41 wherein it is  

observed that:-

“…..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.”   

129. Having accepted the principle of territoriality, it is  

evident that the intention of the parliament was to segregate  

Part I and Part II. Therefore, any of the provisions contained in  

Part I can not be made applicable to Foreign Awards, as  41  [2007] 1 Lloyds Report 237

-  - 121

Page 122

defined under Sections 44 and 53, i.e., the New York  

Convention and the Geneva Awards. This would be a distortion  

of the scheme of the Act. It is, therefore, not possible to accept  

the submission of Mr. Subramanium that provisions contained  

in Part II are supplementary to the provision contained in Part  

I. The Parliament has clearly segregated the two parts.   

Section     45   

130. We are unable to accept the submission that the  

use of expression “notwithstanding anything contained in Part  

I, or in the Code of Civil Procedure, 1908”, in Section 45 of the  

Arbitration Act, 1996 necessarily indicates that provisions of  

Part I would apply to foreign seated arbitration proceedings.  

Section 45 falls within Part II which deals with enforcement  

proceedings in India and does not deal with the challenge to  

the validity of the arbitral awards rendered outside India.  

Section 45 empowers a judicial authority to refer the parties to  

arbitration, on the request made by a party, when seized of an  

action in a matter in respect of which the parties have made  

an agreement referred to in Section 44.  It appears that  

-  - 122

Page 123

inclusion of the term “judicial authority” in Sections 5 and 8 of  

the Arbitration Act, 1996, has caused much confusion in the  

minds of the learned counsel for the appellants. In our opinion,  

there is no justification for such confusion.  Such use of the  

term “judicial authority”, in Section 5 and Section 8 of the  

Arbitration Act, 1996, is not a recognition by the Parliament  

that Part I will apply to international commercial arbitrations  

held outside India. The term “judicial authority”  is a legacy  

from the 1940 Act. The corresponding provision of Section 34  

of the 1940 Act, which covered purely domestic arbitrations,  

between two or more Indian parties, within the territory of  

India, also refers to “judicial authority”.  It is nobody’s  

contention that by using the term “judicial authority”, the  

Parliament had intended the 1940 Act to apply outside India.  

In our opinion, the term “judicial authority” has been retained  

especially in view of policy of least intervention, which can not  

be limited only to the Courts.  This is clearly in recognition of  

the phenomenon that the judicial control of commercial  

disputes is no longer in the exclusive jurisdiction of Courts.  

There are many statutory bodies, tribunals which would have  

adjudicatory jurisdiction in very complex commercial matters.  

Section 5 would be equally applicable to such bodies. The use  

-  - 123

Page 124

of the term “judicial authority” in no manner has any reference  

to arbitrations not held in India    It is in conformity with  

Clause (V) of the objects and reasons for the Arbitration Act,  

1996, which has been given statutory recognition in Section 5.  

131.   The learned senior counsel had also pointed out  

that  since Section 19 of the Arbitration Act, 1996 clearly  

provides that the arbitral tribunal shall not be bound by the  

Code of Civil Procedure, 1908, there was no need for the non-

obstante clause. But the reason, in our view, is discernable  

from Section 3 of the 1961 Act, which also contains a non-

obstante clause with reference to the Arbitration Act, 1940.  

Section 45 in the Arbitration Act, 1996 is a repetition of the  

non-obstante clause in Section 3 in the 1961 Act. It is not  

unusual for a consolidating act to retain the expressions used  

in the previous Acts, which have been consolidated into a form  

of Principal Act. A consolidating Act is described in Halsbury’s  

law of England, Fourth Edition Reissue, Para 1225 as under:-

“A consolidation Act is a form of principal Act which  presents the whole body of the statute law on a  subject in complete form, repealing the former Acts.  When drafting a consolidation Act the practice is not  to change the existing wording, except so far as may  be required for purposes of verbal ‘carpentry’, and  not to incorporate court rulings.  This is known as  

-  - 124

Page 125

‘straight’  consolidation, the product being a form of  declaratory enactment.  The difference between a  consolidating Act and a codifying Act is that the  latter, unlike the former, incorporates common law  rules not previously codified.  It can be determined  from the long title whether or not an Act is a  consolidation Act.”                     (emphasis supplied)

132.  Similarly, a certain amount of ‘carpentry’ has been  

done in the Arbitration Act, 1996 whilst consolidating the  

earlier three Acts. Therefore, in section 45 of the Arbitration  

Act, 1996, the reference to 1940 Act has been replaced by  

reference to Part I, which now covers the purely domestic  

arbitrations, earlier covered by the 1940 and the new  

additions, i.e. the international commercial arbitrations, which  

take place in India.  It appears that the Parliament in order to  

avoid any confusion has used the expression “notwithstanding  

anything contained in Part I” out of abundant caution, i.e., “ex  

abundanti cautela”.  A three judge bench of this Court in R.S.  

Raghnath Vs. State     of     Karnataka     &     Anr.  42  , considering the  

nature of the non-obstante clause observed that:-

“11. ………………

But the non-obstante clause need not necessarily  and always be co-extensive with the operative part  

42  (1992) 1 SCC 335

-  - 125

Page 126

so as to have the effect of cutting down the clear  terms of an enactment and if the words of the  enactment are clear and are capable of a clear  interpretation on a plain and grammatical  construction of the words the non-obstante clause  cannot cut down the construction and restrict the  scope of its operation. In such cases the non- obstante clause has to be read as clarifying the  whole position and must be understood to have been  incorporated in the enactment by the legislature by  way of abundant caution and not by way of limiting  the ambit and scope of the Special Rules.”

133. We are, therefore, of the opinion that existence of  

the non-obstante clause does not alter the scope and ambit of  

the field of applicability of Part I to include international  

commercial arbitrations, which take place out of India. We  

may further point out that a similar provision existed in the  

English Arbitration Act, 1950 and the English Arbitration Act,  

1975.  Section 4(1) of the English Arbitration Act, 1950 was  

similar to Section 34 of the Arbitration Act, 1940 in India.  

Section 1(2) of the English Arbitration Act, 1975 was similar to  

Section 3 of the Foreign Awards Act, 1961.   

134.  In view of the above, it would not be possible to  

accept the submission of the learned counsel for the appellants  

that the aforesaid non-obstante clause in Section 45 would  

-  - 126

Page 127

indicate that provisions of Part I would also be applicable to  

arbitrations that take place outside India.  

Does     Section     48(1)(e)     recognize     the     jurisdiction     of     Indian    Courts     to     annul     a     foreign     award,     falling     within     Part     II?   

135.  Much emphasis has been laid by the learned  

counsel for the appellants on the expression that enforcement  

of a foreign award may be refused when the award “has been  

set aside or suspended …..”  “under the law of which”  that  

award was made.  The aforesaid words and expressions appear  

in Section 48, which is contained in Part II of the Arbitration  

Act, 1996 under the title “enforcement of certain foreign  

awards”.  The Courts in India under Chapter I of Part II of the  

aforesaid Act have limited powers to refuse the enforcement of  

foreign awards given under the New York Convention. It would  

be apposite to notice the provisions of Section 48 at this stage,  

which are as under:-

“48.Conditions for enforcement of foreign awards.-  

(1) Enforcement of a foreign award may be refused,  at the request of the party against whom it is  invoked, only if that party furnishes to the court  proof that----

(a) the parties to the agreement referred to in  section 44 were, under the law applicable to  them, under some incapacity, or the said  

-  - 127

Page 128

agreement is not valid under the law to which  the parties have subjected it or, failing any  indication thereon, under the law of the  country where the award was made; or

(b) the party against whom the award is  invoked was not given proper notice of the  appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present  his case; or

(c) the award deals with a difference not  contemplated by or not falling within the terms  of the submission to arbitration, or it contains  decisions on matters beyond the scope of the  submission to arbitration.

Provided that, if the decisions on matters  submitted to arbitration can be separated from  those not so submitted, that part of the award  which contains decisions on matters submitted  to arbitration may be enforced; or

(d) the composition of the arbitral authority or  the arbitral procedure was not in accordance  with the agreement of the parties, or, failing  such agreement, was not in accordance with  the law of the country where the arbitration  took place ; or

(e) the award has not yet become binding on  the parties, or has been set aside or suspended  by a competent authority of the country in  which, or under the law of which, that award  was made.

(2) Enforcement of an arbitral award may also be  refused if the court finds that-

(a) the subject -matter of the difference is not  capable of settlement by arbitration under the  law of India; or

(b) the enforcement of the award would be  

-  - 128

Page 129

contrary to the public policy of India.

Explanation.----Without prejudice to the  generality of clause (b), it is hereby declared, for the  avoidance of any doubt, that an award is in conflict  with the public policy of India if the making of the  award was induced or affected by fraud or  corruption.

(3) If an application for the setting aside or  suspension of the award has been made to a  competent authority referred to in clause (e) of sub- section (1) the Court may, if it considers it proper,  adjourn the decision on the enforcement of the  award and may also , on the application of the party  claiming enforcement of the award, order the other  party to give suitable security.”

136.  The party which seeks to resist the enforcement of  

the award has to prove one or more of the grounds set out in  

Section 48(1) and (2) and/or the explanation of sub-section (2).  

In these proceedings, we are, however, concerned only with the  

interpretation of the terms “country where the award was  

made” and “under the law of which the award was made”. The  

provisions correspond to Article V(1)(e) of the New York  

Convention, which reads as under:-

“1. Recognition and enforcement of the award may  be refused, at the request of the party against whom  it is invoked, only if that party furnishes to the  competent authority where the recognition and  enforcement is sought, proof that:

…………………………….

-  - 129

Page 130

(e) the award has not yet become binding on the  parties, or has been set aside or suspended by a  competent authority of the country in which, or  under the law of which, that award was made.

2. Recognition and enforcement of an arbitral award  may also be refused if the competent authority in  the country where recognition and enforcement is  sought finds that:

(a) the subject matter of the difference is not  capable of settlement by arbitration under the  law of that country; or

(b) the recognition or enforcement of the award  would be contrary to the public policy of that  country.

137.  The aforesaid Article of the New York Convention  

has been bodily lifted and incorporated in the Arbitration Act,  

1996 as Section 48.

138.  Thus, the intention of the legislature is clear that  

the Court may refuse to enforce the foreign award on  

satisfactory proof of any of the grounds mentioned in Section  

48(1), by the party resisting the enforcement of the award.  The  

provision sets out the defences open to the party to resist  

enforcement of a foreign award.  The words “suspended or set  

aside”, in Clause (e) of Section 48(1) can not be interpreted to  

mean that, by necessary implication, the foreign award sought  

-  - 130

Page 131

to be enforced in India can also be challenged on merits in  

Indian Courts. The provision merely recognizes that courts of  

the two nations which are competent to annul or suspend an  

award.  It does not ipso facto confer jurisdiction on such  

Courts for annulment of an award made outside the country.  

Such jurisdiction has to be specifically provided, in the  

relevant national legislation of the country in which the Court  

concerned is located.  So far as India is concerned, the  

Arbitration Act, 1996 does not confer any such jurisdiction on  

the Indian Courts to annul an international commercial award  

made outside India.  Such provision exists in Section 34,  

which is placed in Part I.  Therefore, the applicability of that  

provision is limited to the awards made in India.  If the  

arguments of the learned counsel for the appellants are  

accepted, it would entail incorporating the provision contained  

in Section 34 of the Arbitration Act, 1996, which is placed in  

Part I of the Arbitration Act, 1996 into Part II of the said Act.  

This is not permissible as the intention of the Parliament was  

clearly to confine the powers of the Indian Courts to set aside  

an award relating to international commercial arbitrations,  

which take place in India.  

-  - 131

Page 132

139.  As noticed above, this section corresponds to  

Article V(1)(e) of the New York Convention. A reading of the  

Article V(1)(e) [Section 48(1)(e)] makes it clear that only the  

courts in the country “in which the award was made” and the  

courts “under the law of which the award was made”  

(hereinafter referred to as the “first alternative”  and the  

“second alternative”  respectively) would be competent to  

suspend/annul the New York Convention awards. It is clarified  

that Section 48(1)(e) is only one of the defences on the basis of  

which recognition and enforcement of the award may be  

refused. It has no relevance to the determination of the issue  

as to whether the national law of a country confers upon its  

courts, the jurisdiction to annul the awards made outside the  

country. Therefore, the word “suspended/set aside” in Section  

48(1)(e) cannot be interpreted to mean that, by necessary  

implication, the foreign awards sought to be enforced in India  

can also be challenged on merits in Indian Courts.  The  

provision only means that Indian Courts would recognize as a  

valid defence in the enforcement proceedings relating to a  

foreign award, if the Court is satisfied that the award has been  

set aside in one of the two countries, i.e., the “first alternative”  

or the “second alternative”.

-  - 132

Page 133

140. Mr. Sundaram had submitted that the two countries  

identified in “alternative one” and “alternative two”, would have  

concurrent jurisdiction to annul the award.  In our opinion,  

interpreting the provision in the manner suggested by Mr.  

Sundaram would lead to very serious practical problems.   

141.  In this context, it would be relevant to take note of  

some of the observations made by Hans Smit, Professor of  

Law, Columbia University in the Article titled “Annulment and  

Enforcement of International Arbitral Awards”. The author  

points out the reasons for incorporating the second forum for  

annulment. He states that –

“While, therefore, there appears to be no  justification, based in reason and principle, for  providing for an exception to the general rule of  recognition and enforcement for the forum at the  place of arbitration, the drafters of the Convention  compounded their error by providing for two fora for  an annulment action. For Article V(1)(e) envisages  that an annulment action may be brought “in the  country in which….the award was made” or “in the  country….under the law of which the award was  made.” The disjunctive used in the Convention’s text  naturally raises the question of whether the second  forum is available only if the first is not or whether  the party seeking annulment has the option of  selecting either or even to try its luck in both. The  legislative history of the Convention sheds  illuminating light on the issue.

-  - 133

Page 134

The text of Article V(1)(e) originally proposed  acknowledge only the bringing of an annulment  action in the place in which the award was made.  One of the delegates at the Conference devoted to  the drafting of the Convention raised the question of  what would happen if the forum at the place of  arbitration would refuse to entertain an annulment  action. The obviously correct answer to that  question would have been that, in that case, no  annulment action could be brought and that the  happy consequence would be that only denial of  recognition and enforcement on grounds specified in  the Convention would be possible. Instead, the  drafters of the Convention provided for an  alternative forum in the country the arbitration laws  of which governed the arbitration. That choice was  both most fateful and most regrettable.”                 

142. These observations militate against the concurrent  

jurisdiction submission of Mr.Sundaram. The observations  

made by the learned author, as noticed above, make it clear  

that the “second alternative”  is an exception to the general  

rule. It was only introduced to make it possible for the award  

to be challenged in the court of the “second alternative”, if the  

court of the “first alternative”  had no power to annul the  

award, under its national legislation. In our opinion, the  

disjunction would also tend to show that the “second  

alternative” would be available only if the first is not. Accepting  

the submission made by Mr.Sundaram, would lead to  

unnecessary confusion.  There can be only one Court with  

-  - 134

Page 135

jurisdiction to set aside the award.  There is a public policy  

consideration apparent, favouring the interpretation that, only  

one Court would have jurisdiction to set aside the arbitral  

award.  This public policy aspect was considered by the Court  

of Appeal in England in the case of C Vs.   D     (supra).  The  

observation of the Court of Appeal in Paragraph 16 of the  

judgment has already been reproduced earlier in this  

judgment.  

143. It was pointed out by the Court of Appeal that accepting  

more than one jurisdiction for judicial remedies in respect of  

an award would be a recipe for litigation and confusion.  

“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”.   

144.  The creation of such a situation is apparent from the  

judgment of this Court in Venture Global Engineering  

(supra).  In the aforesaid judgment, the award was made by  

the London Court of International Arbitration on 3rd April,  

2006. Respondent No.1, on 14th April, 2006, filed a petition to  

-  - 135

Page 136

recognize and enforce the award before the United States  

District Court, Eastern District Court of Michigan, in the  

United States of America (for short the ‘US Court’). The  

appellant entered appearance to defend this proceeding before  

the US Court by filing a cross petition. In the said petition, it  

took objection to the enforcement of the award, which had  

directed transfer of shares. The objection was that the  

direction was in violation of Indian laws and regulations,  

specifically the Foreign Exchange Management Act (in short  

the ‘FEMA’) and its notifications. Two weeks later on  

28th April, 2006, the appellant filed a suit in the City Civil  

Court, Secunderabad seeking declaration to set aside the  

award and permanent injunction on the transfer of shares. On  

15th June, 2006, the District Court passed an ad interim ex  

parte order of injunction, inter alia,  restraining respondent  

No.1 for seeking or effecting the transfer of shares either under  

the terms of the award or otherwise. Respondent No.1 filed an  

appeal challenging the said order before the High Court of  

Andhra Pradesh. The High Court admitted the appeal and  

directed interim suspension of the order of the District Judge,  

but made it clear that “respondent No.1 would not affect the  

transfer of shares till further orders”.  

-  - 136

Page 137

145. On 13th July, 2006, in response to the summons,  

respondent No.1 appeared in the court and filed a petition  

under Order VII, Rule 11 for rejection of the plaint. The trial  

court by its order dated 28th December, 2006, allowed the said  

application and rejected the plaint of the appellant. On 27th  

February, 2007, the High Court dismissed the appeal holding  

that the award cannot be challenged even if it is against public  

policy and in contravention of statutory provisions. The  

judgment of the High Court was challenged in appeal before  

this Court.  The appeal was allowed. It was held as follows:

“31. On close scrutiny of the materials and the  dictum laid down in the three-Judge Bench decision  in Bhatia International we agree with the contention  of Mr. K.K. Venugopal and hold that paras 32 and  35 of Bhatia International make it clear that the  provisions of Part I of the Act would apply to all  arbitrations including international commercial  arbitrations and to all proceedings relating thereto.  We further hold that where such arbitration is held  in India, the provisions of Part I would compulsorily  apply and parties are free to deviate to the extent  permitted by the provisions of Part I. It is also clear  that even in the case 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. We are also of the view that such an  interpretation does not lead to any conflict between  any of the provisions of the Act and there is no  lacuna as such. The matter, therefore, is concluded  by the three-Judge Bench decision in Bhatia  

-  - 137

Page 138

International

33. The very fact that the judgment holds that it  would be open to the parties to exclude the  application of the provisions of Part I by express or  implied agreement, would mean that otherwise the  whole of Part I would apply. In any event, to apply  Section 34 to foreign international awards would not  be inconsistent with Section 48 of the Act, or any  other provision of Part II as a situation may arise,  where, even in respect of properties situate in India  and where an award would be invalid if opposed to  the public policy of India, merely because the  judgment-debtor resides abroad, the award can be  enforced against properties in India through  personal compliance of the judgment-debtor and by  holding out the threat of contempt as is being  sought to be done in the present case. In such an  event, the judgment-debtor cannot be deprived of  his right under Section 34 to invoke the public  policy of India, to set aside the award. As observed  earlier, the public policy of India includes — (a) the  fundamental policy of India; or (b) the interests of  India; or (c) justice or morality; or (d) in addition, if it  is patently illegal. This extended definition of public  policy can be bypassed by taking the award to a  foreign country for enforcement.

37. In view of the legal position derived from Bhatia  International we are unable to accept Mr. Nariman's  argument. It is relevant to point out that in this  proceeding, we are not deciding the merits of the  claim of both parties, particularly, the stand taken  in the suit filed by the appellant herein for setting  aside the award. It is for the court concerned to  decide the issue on merits and we are not  expressing anything on the same. The present  conclusion is only with regard to the main issue  whether the aggrieved party is entitled to challenge  the foreign award which was passed outside India in  terms of Sections 9/34 of the Act. Inasmuch as the  three-Judge Bench decision is an answer to the  main issue raised, we are unable to accept the  contra view taken in various decisions relied on by  

-  - 138

Page 139

Mr. Nariman. Though in Bhatia International1 the  issue relates to filing a petition under Section 9 of  the Act for interim orders the ultimate conclusion  that Part I would apply even for foreign awards is an  answer to the main issue raised in this case.

42. The learned Senior Counsel for the appellant  submitted that the first respondent Satyam  Computer Services Ltd. could not have pursued the  enforcement proceedings in the District Court in  Michigan, USA in the teeth of the injunction granted  by the courts in India which also, on the basis of the  comity of courts, should have been respected by the  District Courts in Michigan, USA. Elaborating the  same, he further submitted that the injunction of  the trial court restraining the respondents from  seeking or effecting the transfer of shares either  under the terms of the award or otherwise was in  force between 15-6-2006 and 27-6-2006. The  injunction of the High Court in the following terms - “the appellant (i.e. Respondent 1) shall not effect the  transfer of shares of the respondents pending  further orders” was in effect from 27-6-2006 till 28- 12-2006. The judgment of the US District Court was  on 13-7-2006 and 31-7-2006 when the award was  directed to be enforced as sought by Respondent 1,  notwithstanding the injunction to the effect that the  appellant (Respondent 1 herein) “shall not effect the  transfer of shares of the respondents pending  further orders”. The first respondent pursued his  enforcement suit in Michigan District Courts to have  a decree passed directing — “… VGE shall deliver to  Satyam or its designee, share certificates in a form  suitable for immediate transfer to Satyam  evidencing all of the appellant's ownership interest  in Satyam Venture Engineering Services (SVES), the  party's joint venture company”. Further, “VGE (the  appellant herein) shall do all that may otherwise be  necessary to effect the transfer of its ownership  interest in SVES to Satyam (or its designee)”. It is  pointed out that obtaining this order by pursuing  the case in the US District Courts, in the teeth of the  prohibition contained in the order of the High Court,  would not only be a contempt of the High Court but  

-  - 139

Page 140

would render all proceedings before the US courts a  brutum fulmen, and liable to be ignored. Though Mr.  R.F. Nariman has pointed out that the High Court  only restrained the respondent from effecting  transfer of the shares pending further orders by the  City Civil Court, Secunderabad, after the orders of  the trial court as well as limited order of the High  Court, the first respondent ought not to have  proceeded with the issue before the District Court,  Michigan without getting the interim  orders/directions vacated.

47. In terms of the decision in Bhatia International  we hold that Part I of the Act is applicable to the  award in question even though it is a foreign award.  We have not expressed anything on the merits of  claim of both the parties. It is further made clear  that if it is found that the court in which the  appellant has filed a petition challenging the award  is not competent and having jurisdiction, the same  shall be transferred to the appropriate court. Since  from the inception of ordering notice in the special  leave petition both parties were directed to maintain  status quo with regard to transfer of shares in issue,  the same shall be maintained till the disposal of the  suit. Considering the nature of dispute which relates  to an arbitration award, we request the court  concerned to dispose of the suit on merits one way  or the other within a period of six months from the  date of receipt of copy of this judgment. Civil appeal  is allowed to this extent. No costs.”

146. With these observations, the matter was remanded back  

to the trial court to dispose of the suit on merits. The  

submissions made by Mr. K.K.Venugopal, as noticed in  

paragraph 42, epitomize the kind of chaos which would be  

created by two court systems, in two different countries,  

exercising concurrent jurisdiction over the same dispute. There  

-  - 140

Page 141

would be a clear risk of conflicting decisions. This would add to  

the problems relating to the enforcement of such decisions.  

Such a situation would undermine the policy underlying the  

New York Convention or the UNCITRAL Model Law. Therefore,  

we are of the opinion that appropriate manner to interpret the  

aforesaid provision is that “alternative two”  will become  

available only if “alternative one” is not available.     

147.   The expression “under the law”  has also generated a  

great deal of controversy as to whether it applies to “the law  

governing the substantive contract”  or “the law governing the  

arbitration agreement” or limited only to the procedural laws of  

the country in which the award is made.       

148.   The consistent view of the international commentators  

seems to be that the “second alternative”  refers to the  

procedural law of the arbitration rather than “law governing  

the arbitration agreement”  or “underlying contract”.  This is  

even otherwise evident from the phrase “under the law, that  

award was made”, which refers to the process of making the  

award (i.e., the arbitration proceeding), rather than to the  

formation or validity of the arbitration agreement.   

149. Gary B. Born in his treatise titled International  

-  - 141

Page 142

Commercial Arbitration takes the view in Chapter 21 that the  

correct interpretation of Article V(1)(e)’s “second alternative” is  

that it relates exclusively to procedural law of the arbitration  

which produced an award and not to other possible laws (such  

as the substantive law governing the parties underlying  

dispute or governing the parties’  arbitration agreement). He  

further notices that courts have generally been extremely  

reluctant to conclude that the parties have agreed upon a  

procedural law other than that of the arbitral seat.  

Consequently, according to Born, although it is theoretically  

possible for an award to be subject to annulment outside the  

arbitral seat, by virtue of Article V(1)(e)’s “second alternative”,  

in reality this is a highly unusual “once-in-a-blue-moon”  

occurrence. He further notices that a number of national  

courts have considered the meaning of Article V(1)(e)’s “second  

alternative”. Many, but not all, courts have concluded that the  

alternative refers to “the procedural law of arbitration”, rather  

than the “substantive law applicable to the merits of the  

parties’ dispute or to the parties’ arbitration agreement.” In our  

opinion, the views expressed by the learned author are in  

consonance with the scheme and the spirit in which the New  

York Convention was formulated. The underlying motivation of  

-  - 142

Page 143

the New York Convention was to reduce the hurdles and  

produce a uniform, simple and speedy system for enforcement  

of foreign arbitral award. Therefore, it seems to be accepted by  

the commentators and the courts in different jurisdictions that  

the language of Article V(1)(e) referring to the “second  

alternative”  is to the country applying the procedural law of  

arbitration if different from the arbitral forum and not the  

substantive law governing the underlying contract between the  

parties.        

Case     Law   –

150. At this stage, it would be appropriate to consider the  

manner in which the expression “under the law”  has been  

interpreted judicially in different jurisdictions.  

151. The aforesaid expression came up for consideration in the  

case of Karaha     Bodas     Co.     LLC   Vs. Perusahaan  

Pertambangan     Minyak     Dan     Gas     Bumi     Negara,  43   the Federal  

Court in the U.S. considered the provisions contained in Article  

V(1)(e) and observed as follows:-

“Article V(1)(e) of the Convention provides that a  43  335 F.3d 357

-  - 143

Page 144

court of secondary jurisdiction may refuse to enforce  an arbitral award if it “has been set aside or  suspended by a competent authority of the country  in which, or under the law of which, that award was  made.”   Courts have held that the language, “the  competent authority of the country ……  under the  law of which, that award was made”  refers  exclusively to procedural and not substantive law,  and more precisely, to the regimen or scheme of  arbitral procedural law under which the arbitration  was conducted, and not the substantive law…..  applied in the case.”……………..

“Under the New York Convention, an agreement  specifying the place of the arbitration creates a  presumption that the procedural law of that place  applies to the arbitration.  Authorities on  international arbitration describe an agreement  providing that one country will be the site of the  arbitration but the proceedings will be held under  the arbitration law of another country by terms such  as “exceptional”; “almost unknown”; a “purely  academic invention”; “almost never use in practice”;  a possibility “more theoretical than real”; and a  “once–in-a-blue-moon set of circumstances.”  Commentators note that such an agreement would  be complex, inconvenient, and inconsistent with the  selection of a neutral forum as the arbitral  forum……..”

152. Similarly, in the case of Karaha     Bodas     Co.     LLC     (Cayman    

Islands) Vs. Perusahaan     Pertambangan     Minyak     Dan     Gas    

Bumi     Negara   –    Pertamina     (Indonesia),  44   the aforesaid legal  

proposition is reiterated. In this case, again the Hong Kong  

Court considered Article V(1)(e) of the Convention at length.  44  Yearbook Comm. Arb’n Vol. XXVIII )2003) Page 752

-  - 144

Page 145

This was a case where the substantive law applicable to the  

contract was Indonesian law and the country of the arbitration  

i.e. seat of arbitration as per the arbitration agreement was  

Switzerland.  It was contended relying on the second leg of  

Article V(1)(e) that the law under which the award had been  

made was Indonesian law and therefore Pertamina’s challenge  

in Indonesia was valid.  This was rejected.  It was held that  

Article V(1)(e) referred to the procedural or curial law and that  

because the seat of the arbitration was in Switzerland, the lex  

arbitri or the curial  or procedural law applicable to the  

arbitration was Swiss law.  Therefore, only the Swiss Courts  

had jurisdiction to set aside the award.  

153. In International     Electric     Corporation   Vs. Bridas  

Sociedad     Anonima     Petroleva,     Industrial     Y     Commercial,  45    

the New York Court held that the italicised words referred to  

the procedural law governing the arbitration, and not to the  

substantive law governing the agreement between the parties,  

since the situs of arbitration is Mexico, the governing  

procedural law that of Mexico, only Mexico Courts have  

jurisdiction under the Convention to vacate the award.   

45  745 F Supp 172, 178 (SDNY 1990)

-  - 145

Page 146

154. Redfern and Hunter (supra) at paragraph 11.96 state that  

the court which is competent to sustain or set aside an award  

is the court of the country in “alternative one”  or “alternative  

two”. The authors, however, further state that “this Court will  

almost invariably be the national court at the seat of the  

arbitration”. They point out that the prospect of an award  

being set aside under the procedural law of a State other than  

that at the seat of arbitration is unlikely. They point out  that  

an ingenious (but unsuccessful) attempt was made to persuade  

the US District Court to set aside an award made in Mexico, on  

the basis that the reference to the law under which that award  

was made was a reference to the law governing the dispute and  

not to the procedural law (Paragraph 11.96).  The Learned  

Authors had made a reference to the case International  

Standard     Electric     Corp.     (US)   Vs. Bridas     Sociedad     Anonima    

Petrolera     (Argentina).  46    The Court rejected the aforesaid  

argument with the following observations:-

“Decisions of foreign courts under the Convention  uniformly support the view that the clause in  question means procedural and not substantive  (that is, in most cases, contract law)….

Accordingly, we hold that the contested language in  

46  (1992) VII Ybk Comm Arb 639

-  - 146

Page 147

Article V(1)(e) of the Convention……refers  exclusively to procedural  and not substantive law,  and more precisely to the regimen or scheme of  arbitral procedural law under which the arbitration  was conducted.”

155. The Court went on to hold that since the quorum of  

arbitration was Mexico, only the Mexican court had jurisdiction  

to set aside the award.  

156. The correct position under the New York Convention is  

described very clearly and concisely by Gary B. Born in his  

book International Commercial Arbitration (Kluwer Law  

International, Vol. I), Chapter X Page 1260 as follows :

“This provision is vitally important for the  international arbitral process, because it  significantly restricts the extent of national court  review of international arbitral awards in annulment  actions, limiting such review only to the courts of  the arbitral seat (that is, the state where the award  is made or the state whose procedural law is  selected by the parties to govern the arbitration). In  so doing, the Convention ensures that courts  outside the arbitral seat may not purport to annul  an international award, thereby materially limiting  the role of such courts in supervising or overseeing  the procedures utilized in international arbitrations.  

At the same time, the New York Convention also  allows the courts of the arbitral seat wide powers  with regard to the annulment of arbitral awards  made locally. The Convention generally permits the  courts of the arbitral seat to annul an arbitral award  

-  - 147

Page 148

on any grounds available under local law, while  limiting the grounds for non-recognition of  Convention awards in courts outside the arbitral  seat to those specified in Article V of the Convention.  This has the effect of permitting the courts of the  arbitral seat substantially greater scope than courts  of other states to affect the conduct or outcome of  an international arbitration through the vehicle of  annulment actions. Together with the other  provisions of Articles II and V, this allocation of  annulment authority confirms the (continued) special  importance of the arbitral seat in the international  arbitral process under the New York Convention.”  

( emphasis supplied)

157. In our opinion, the aforesaid is the correct way to  

interpret the expressions “country where the award was made”  

and the “country under the law of which the award was made”.  

We are unable to accept the submission of Mr. Sundaram that  

the provision confers concurrent jurisdiction in both the fora.  

“Second alternative” is available only on the failure of the “first  

alternative”. The expression under the law is the reference only  

to the procedural law/curial law of the country in which the  

award was made and under the law of which the award was  

made. It has no reference to the substantive law of the contract  

between the parties. In such view of the matter, we have no  

hesitation in rejecting the submission of the learned counsel  

for the appellants.      

-  - 148

Page 149

158. At this stage, we may notice that in spite of the aforesaid  

international understanding of the second limb of Article V(1)

(e), this Court has proceeded on a number of occasions to  

annul an award on the basis that parties had chosen Indian  

Law to govern the substance of their dispute.  The aforesaid  

view has been expressed in Bhatia International (supra) and  

Venture Global Engineering (supra).  In our opinion,  

accepting such an interpretation would be to ignore the spirit  

underlying the New York Convention which embodies a  

consensus evolved to encourage consensual resolution of  

complicated, intricate and in many cases very sensitive  

International Commercial Disputes. Therefore, the  

interpretation which hinders such a process ought not to be  

accepted. This also seems to be the view of the national courts  

in different jurisdictions across the world. For the reasons  

stated above, we are also unable to agree with the conclusions  

recorded by this Court in Venture Global Engineering (supra)  

that the foreign award could be annulled on the exclusive  

grounds that the Indian law governed the substance of the  

dispute. Such an opinion is not borne out by the huge body of  

judicial precedents in different jurisdictions of the world.

Interim     measures     etc.     by     the     Indian     Courts     where     the     seat    

-  - 149

Page 150

of     arbitration     is     outside     India.   

159. We have earlier noticed the submissions made by the  

learned counsel for the parties wherein they had emphasised  

that in case the applicability of Part I is limited to arbitration  

which take place in India, no application for interim relief  

would be available under Section 9 of the Arbitration Act,  

1996, in an arbitration seated outside India. It was further  

emphasised that in such circumstances, the parties would be  

left remediless.  Dr. Singhvi, in order to get out of such a  

situation, had submitted that remedy under Section 9 would  

still be available. According to Dr. Singhvi, Section 9 is a stand  

alone provision which cannot be effected by the limit contained  

in Section 2(2). He submits that the provisions contained in  

Section 9 do not impede the arbitral process. Its only purpose  

is to provide an efficacious, preservatory, interim,  

conservatory, emergent relief necessary for protecting the  

subject matter of arbitration, pending the conclusions of the  

proceedings. He also emphasised that interim orders of foreign  

courts are not, ipso facto or ipso jure, enforceable in India and,  

absent Section 9, a party will be remediless in several real life  

situations. He, therefore, urged that this Court could give a  

purposive interpretation of Section 9 to ensure that the Courts  

-  - 150

Page 151

in India have the jurisdiction to take necessary measures for  

preservation of assets and/or to prevent dissipation of assets.  

Dr. Singhvi submitted that the decision in Bhatia  

International (supra) is correct, in so far as it relates to the  

grant of interim injunction under Section 9 of the Arbitration  

Act, 1996. He did not say before us that the courts in India  

would have any power to annul the award under Section 34 of  

the Arbitration Act, 1996, in matters where arbitrations have  

taken place at abroad. But at the same time, he canvassed  

that the provisions contained in Section 9 cannot be equated  

with the provisions contained in Section 34. The remedy under  

Section 9 is interim and subservient to the main arbitration  

proceedings, whereas remedy under Section 34 would interfere  

with the final award. Further more, annulment of the award  

under Section 34 would have extra-territorial operation  

whereas Section 9 being entirely asset focused, would be  

intrinsically territory focused and intra-territorial in its  

operation. He submitted that the ratio in Bhatia International  

on the core issue, i.e., grant of interim measures under Section  

9, is correct.  Although, he was not much concerned about the  

other issues, of annulment or enforcement of the award, he  

has reiterated the submissions made by the other learned  

-  - 151

Page 152

counsel, on Sections 2(2), 2(1)(f) and 2(5).   

160. We are unable to accept the submissions made by the  

learned counsel.  It would be wholly undesirable for this Court  

to declare by process of interpretation that Section 9 is a  

provision which falls neither in Part I or Part II.  We also do not  

agree that Section 9 is a sui generis provision.  

161. Schematically, Section 9 is placed in Part I of the  

Arbitration Act, 1996.  Therefore, it can not be granted a  

special status. We have already held earlier that Part I of the  

Arbitration Act, 1996 does not apply to arbitrations held  

outside India. We may also notice that Part II of the Arbitration  

Act, 1996, on the other hand, does not contain a provision  

similar to Section 9. Thus, on a logical and schematic  

construction of the Arbitration Act, 1996, the Indian Courts do  

not have the power to grant interim measures when the seat of  

arbitration is outside India.  A bare perusal of Section 9 would  

clearly show that it relates to interim measures before or  

during arbitral proceedings or at any time after the making of  

the arbitral award, but before it is enforced in accordance with  

Section 36.  Section 36 necessarily refers to enforcement of  

domestic awards only.  Therefore, the arbitral proceedings  

-  - 152

Page 153

prior to the award contemplated under Section 36 can only  

relate to arbitrations which take place in India. We, therefore,  

do not agree with the observations made in Bhatia  

International (supra) in paragraph 28 that “The words in  

accordance with Section 36 can only go with the words after  

the making of the arbitral award.” It is clear that the words “in  

accordance with Section 36”  can have no reference to an  

application made “before” or “during the arbitral proceedings”.  

The text of Section 9 does not support such an interpretation.  

The relevant part of the provisions is as under:  

“9. Interim measures, etc. by Court – A party may,  before or during arbitral proceedings or at any time  after the making of the arbitral award but before it  is enforced in accordance with Section 36, apply to a  court………..”

162.  A bare look at the aforesaid provision would indicate that  

there is no break up of the sentence in between the two comas  

at the beginning and end of the sentence. Therefore, the  

sentence cannot be broken into three parts as it is done in  

paragraph 28 of Bhatia International (supra). The arbitral  

proceedings mentioned in the aforesaid provision cannot relate  

to arbitration which takes place outside India.  

163. Therefore, we have no hesitation in declaring that the  

provision contained in Section 9 is limited in its application to  

-  - 153

Page 154

arbitrations which take place in India.  Extending the  

applicability of Section 9 to arbitrations which take place  

outside India would be to do violence to the policy of the  

territoriality declared in Section 2(2) of the Arbitration Act,  

1996.   

164. It was next submitted that if the applicability of Part I is  

limited to arbitrations which take place in India, it would leave  

many parties remediless in a number of practical situations.   

165. In this connection, Mr. Sorabjee has relied upon the  

judgment of the English High Court in Reliance  Industries  

Limited (supra). In the aforesaid case, the contracts were  

governed by the Indian law as their proper law. The disputes  

were to be determined by the arbitration in London. The  

procedural law applicable was English Law. The distinction  

between the proper law of the JOA’s and the procedural law  

was known to the parties. At the arbitration hearing, the  

parties agreed that the principles of construction of contracts  

in Indian Law were the same as in English Law. The parties  

further agreed that the English Law principles on the  

construction of contracts were those set out by Lord  

Hoffmann in Investors     Compensation     Scheme     Ltd.     vs.    

-  - 154

Page 155

West     Bromwich     Building     Society  ,47 as explained and  

expanded by Lord Hoffmann in Bank     of     Credit     &     Commerce    

International     SA     vs.     Ali     &     Ors.   48 In their awards, the three  

arbitrators stated (at paragraph 73) that they would apply  

those principles to construe the contracts under  

consideration in making their Partial Arbitral Awards. The  

question raised at the threshold was whether the applicant-

Reliance can apply for permission to appeal to the  

Commercial Court in England and Wales “on a question of  

law arising out of an award made in the proceedings” under  

Section 69 (1) of the Arbitration Act, 1996 (English). So the  

“threshold”  issue was whether any point of construction of  

the contracts, assuming that would be a question of law at  

all, is a “question of law of England and Wales” within Section  

82(1) of the Arbitration Act, 1996. It was accepted by the  

applicant that unless the question of law concerned “the law  

of England and Wales, then leave to appeal cannot be  

granted.”  The issue before the Court was as to whether the  

questions of construction of JOA’s are questions of Indian  

Law because the contracts are governed by Indian Law. The  

parties did not, as a matter of fact, vary the proper law of the  

47  [1998] WLR 1896 at 913

48  [2001] 2 WLR 735 at 749

-  - 155

Page 156

contracts for the purposes of arbitration hearing in London.  

As the parties agreed that the Indian Law applied to the  

contracts, the arbitrators had to apply Indian Law when  

construing the contracts. Although the parties agreed that  

Indian Law and English Law principles of construction were  

the same, ultimately the arbitrators were applying Indian Law  

rather than English Law to construe the contract. The Court  

rejected the submission of the applicant that the arbitrators  

had applied the English Law. The Court observed that:-   

“27. I am unable to accept the submissions of  Mr.Akenhead. The parties agreed that the contracts  were to be governed by Indian Law as their proper  law. The parties also agreed that disputes should be  determined by arbitration in London. The parties  were carful to ensure that English Law would be the  procedural law applicable to arbitration proceedings  that arose as a result of disputes arising out of the  JOAs. The distinction between the proper law of the  JOAs and the procedural law was also well in the  minds of the arbitrators as they drew particular  attention to it in paragraph 26 of their Partial  Awards. The effect of those contractual provisions is,  as the arbitrators also recognized, that all  procedural matters were to be governed by English  law as laid down in Part 1 of the 1996 Act. The  parties must be taken to have appreciated that fact  also. 28. The consequence is that if and when disputes  under the contracts were referred to arbitration, as  a matter of the procedural law of the arbitrations  (English Law), the tribunal had to decide those  disputes in accordance with the proper law of the  contracts as chosen by the parties –  unless the  parties agreed to vary the contracts’  terms, which  they did not. Therefore, if as in this case, the  

-  - 156

Page 157

arbitrators had to decide issues of construction of  the JOAs, then they were bound to do so using  principles of construction established under the  proper law of the contracts, i.e. Indian law.   29. As it happens the parties agreed that the  principles of construction under the proper law of  the contract equated with those principles under  English law, as declared by the House of Lords in  two recent cases. What the arbitrators did was to  take those principles of construction and apply them  as principles of Indian law in order to construe the  contracts according to Indian law. The arbitrators  had to do that, as a matter of the procedural law of  the arbitration. That is because under the English  law of arbitration procedure, the arbitrators were  bound to construe the contracts and determine the  disputes between the parties according to the proper  law of the contracts concerned.            30. Therefore, I think that it is wrong to say that the  arbitrators “applied English Law”  when construing  the contracts. They applied Indian law, which  happened to be the same as English law on this  topic.”

166. On the basis of that, it was concluded that no question  

of law of England and Wales arises out of the two partial  

awards of the arbitrators. It was accordingly held that the  

English Court does not have any power to grant leave to  

appeal under Section 69 of the Arbitration Act, 1996.  

167. In our opinion, the aforesaid judgment does not lead to  

the conclusion that the parties were left without any remedy.  

Rather the remedy was pursued in England to its logical  

conclusion. Merely, because the remedy in such  

circumstances may be more onerous from the view point of  

-  - 157

Page 158

one party is not the same as a party being left without a  

remedy. Similar would be the position in cases where parties  

seek interim relief with regard to the protection of the assets.  

Once the parties have chosen voluntarily that the seat of the  

arbitration shall be outside India, they are impliedly also  

understood to have chosen the necessary incidents and  

consequences of such choice. We, therefore, do not find any  

substance in the submissions made by the learned counsel  

for the appellants, that if applicability of Part I is limited to  

arbitrations which take place in India, it would leave many  

parties remediless.                       

168. If that be so, it is a matter to be redressed by the  

legislature. We may also usefully refer here to the observations  

made in Nalinakhya Bysack (supra), Duport Steels Ltd.  

(supra) and Magor     &     St.     Mellons,     RDC   Vs. Newport  

Corporation (supra), in which the attempt made by Lord  

Denning to construe legislation contrary to Parliament’s  

intention just to avoid hardship was disapproved by the House  

of Lords.  It was observed by Lord Simonds as follows:-

“The second part of the passage that I have cited  from the judgment of the learned Lord Justice is no  doubt the logical sequel of the first.  The court,  having discovered the intention of Parliament and of  Ministers too, must proceed to fill in the gaps.  What  the legislature has not written, the court must write.  

-  - 158

Page 159

This proposition, which restates in a new form the  view expressed by the Lord Justice in the earlier  case of Seaford Court Estates Ld. V. Asher (to which  the Lord Justice himself refers), cannot be  supported.  It appears to me to be a naked usurpation  of the legislative function under the thin disguise of  interpretation and it is the less justifiable when it is  guesswork with what material the legislature would,  if it had discovered the gap, have filled it in.  If a gap  is disclosed, the remedy lies in an amending Act.”

[emphasis supplied]

169. The aforesaid words in italics have been quoted with  

approval by a Constitution Bench of this Court in Punjab     Land    

Development     and     Reclamation     Corporation     Ltd.,    

Chandigarh Vs. Presiding     Officer,     Labour     Court,    

Chandigarh     &     Others.  49    

170.  In view of the aforesaid, we are unable to agree with the  

submission made by Dr. Singhvi that provision contained in  

Section 9 can be made applicable even to arbitrations which  

take place outside India by giving the same a purposive  

interpretation.  In our opinion, giving such an interpretation  

would be destructive of the territorial principles upon which  

the UNCITRAL Model Laws are premised, which have been  

adopted by the Arbitration Act, 1996.

171.   We are further of the opinion that the approach adopted  

by this Court in Bhatia International to remove the perceived  49  (1990) 3 SCC 682

-  - 159

Page 160

hardship is not permissible under law. A perusal of paragraph  

15 would show that in interpreting the provisions of the  

Arbitration Act, 1996, the court applied the following tests:   

   “Notwithstanding the conventional principle that  the duty of Judges is to expound and not to  legislate, the courts have taken the view that the  judicial art interpretation and appraisal is imbued  with creativity and realism and since  interpretation always implied a degree of  discretion and choice, the courts would adopt,  particularly in areas such as, constitutional  adjudication dealing with social and defuse (sic)  rights. Courts are therefore, held as “finishers,  refiners and polishers of legislation which comes  to them in a state requiring varying degrees of  further processing”  (see Corocraft Ltd. v. Pan  American Airways, All ER at p. 1071 D, WLR at p.  732, State of Haryana v. Sampuran Singh, AIR at  p. 1957). If a language used is capable of bearing  more than one construction, in selecting the true  meaning, regard must be had to the  consequences, resulting from adopting the  alternative constructions. A construction that  results in hardship, serious inconvenience,  injustice, absurdity or anomaly or which leads to  inconsistency or uncertainty and friction in the  system which the statute purports to regulate has  to be rejected and preference should be given to  that construction which avoids such results.”  

172. From the above, it is evident that the provisions of the  

Arbitration Act, 1996 were interpreted keeping in mind the  

consequences in limiting the applicability of Part I to  

arbitrations which take place in India. The Court also acted as  

“finishers”, “refiners”  and “polishers”  of the Arbitration Act,  

-  - 160

Page 161

1996 assuming that the Arbitration Act, 1996 required varied  

degrees of further “processing”. In our opinion, as  

demonstrated whilst discussing the various provisions of the  

Arbitration Act, 1996 in earlier part of judgment, the intention  

of the Parliament is available within the text and the context of  

the provisions. As observed by Lord Simonds in Magor &  

St.Mellons Vs. Newport Corporation (supra), if the gap or  

lacuna is disclosed, it would be for the Parliament to rectify the  

same. Such a task cannot be undertaken by the Court.

173. It was also submitted that Non-Convention Awards would  

not be covered either by Part I or Part II. This would amount to  

holding that the legislature has left a lacuna in the Arbitration  

Act, 1996. This would mean that there is no law in India  

governing such arbitrations.  

174.  We are of the opinion that merely because the Arbitration  

Act, 1996 does not cover the non convention awards would not  

create a lacuna in the Arbitration Act, 1996. If there was no  

lacuna during the period in which the same law was contained  

in three different instruments, i.e. the Arbitration Act, 1940  

read with 1961 Act, and the Arbitration (Protocol and  

Convention) Act, 1937, it cannot be construed as a lacuna  

-  - 161

Page 162

when the same law is consolidated into one legislation, i.e. the  

Arbitration Act, 1996.

175. It must further be emphasised that the definition of  

“foreign awards” in Sections 44 and 53 of the Arbitration Act,  

1996 intentionally limits it to awards made in pursuance of an  

agreement to which the New York Convention, 1958 or the  

Geneva Protocol, 1923 applies. It is obvious, therefore, that no  

remedy was provided for the enforcement of the ‘non  

convention awards’  under the 1961 Act. Therefore, the non  

convention award cannot be incorporated into the Arbitration  

Act, 1996 by process of interpretation. The task of removing  

any perceived lacuna or curing any defect in the Arbitration  

Act, 1996 is with the Parliament. The submission of the  

learned counsel is, therefore, rejected. The intention of the  

legislature is primarily to be discovered from the language  

used, which means that the attention should be paid to what  

has been said and also to what has not been said. [See:  

Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. vs. Custodian of  

Vested Forests, [AIR 1990 SCC 1747 at page 1752]. Here the  

clear intention of the legislature is not to include the Non-

convention Awards within the Arbitration Act, 1996.     

-  - 162

Page 163

    Is     An     Inter-Parte     Suit     For     Interim     Relief     Maintainable   –  

176. It appears to us that as a matter of law, an inter-parte  

suit simply for interim relief pending arbitrations, even if it be  

limited for the purpose of restraining dissipation of assets  

would not be maintainable. There would be number of hurdles  

which the plaintiff would have to cross, which may well prove  

to be insurmountable.  

177. Civil Courts in India, by virtue of Section 9 of the Code of  

Civil Procedure, 1908 (for short the ‘CPC’), have the  

jurisdiction to try all suits of a civil nature, excepting suits  

which are either expressly or impliedly barred. Fundamental to  

the maintainability of a civil suit is the existence of a cause of  

action in favour of the plaintiff. This is evident from the various  

provisions contained in the CPC. However, it would be  

appropriate to notice that Order VII Rule 1 gives the list of the  

particulars which have to be mandatorily included in the  

plaint. Order VII Rule 1(e) mandates the plaintiff to state the  

facts constituting the cause of action and when it arose. Order  

VII Rule 11(a) provides the plaint shall be rejected where it  

does not disclose a cause of action. A cause of action is the  

bundle of facts which are required to be proved for obtaining  

-  - 163

Page 164

relief prayed for in the suit. The suit of the plaintiff has to be  

framed in accordance with Order II. Order II Rule 1 provides  

that every suit shall as far as practicable be framed so as to  

afford ground for final decision upon the subjects in dispute  

and to prevent further litigation concerning them. The  

aforesaid rule is required to be read along with Rule 2 which  

provides that every suit shall include the whole of the claim  

which the plaintiff is entitled to make in respect of the cause of  

action; but a plaintiff may relinquish any portion of his claim in  

order to bring the suit within the jurisdiction of any court. The  

aforesaid provisions read together would lead to the firm  

conclusion that the existence of cause of action is a sine qua  

non for the maintainability of a civil suit.  

178. The provisions with regard to the temporary injunction  

and interlocutory orders are contained in Order 39 and Order  

40. In order to claim an injunction the existence of a pending  

suit is a pre requisite. It is in this background that one has to  

examine as to whether an inter-parte suit for interim relief  

during the pendency of arbitration proceedings outside India  

would be maintainable.  

179. In our opinion, pendency of the arbitration proceedings  

-  - 164

Page 165

outside India would not provide a cause of action for a suit  

where the main prayer is for injunction. Mr.Sundaram has  

rightly pointed out that the entire suit would be based on the  

pendency of arbitration proceedings in a foreign country.  

Therefore, it would not be open to a party to file a suit touching  

on the merits of the arbitration. If such a suit was to be filed, it  

would in all probabilities be stayed in view of Sections 8 and  

45 of the Arbitration Act, 1996. It must also be noticed that  

such a suit, if at all, can only be framed as a suit to “inter alia  

restrain the defendant from parting with property.” Now, if the  

right to such property could possibly arise, only if the future  

arbitration award could possibly be in favour of the plaintiff,  

no suit for a declaration could obviously be filed, based purely  

only on such a contingency. All that could then be filed would,  

therefore, be a bare suit for injunction restraining the other  

party from parting with property. The interlocutory relief would  

also be identical. In our view, such a suit would not be  

maintainable, because an interlocutory injunction can only be  

granted during the pendency of a civil suit claiming a relief  

which is likely to result in a final decision upon the subject in  

dispute. The suit would be maintainable only on the existence  

of a cause of action, which would entitle the plaintiff for the  

-  - 165

Page 166

substantive relief claimed in the suit. The interim injunction  

itself must be a part of the substantive relief to which the  

plaintiff’s cause of action entitled him. In our opinion, most of  

the aforesaid ingredients are missing in a suit claiming  

injunction restraining a party from dealing with the assets  

during the pendency of arbitration proceedings outside India.  

Since the dispute is to be decided by the Arbitrator, no  

substantive relief concerning the merits of the arbitration could  

be claimed in the suit. The only relief that could be asked for  

would be to safeguard the property which the plaintiff may or  

may not be entitled to proceed against. In fact the plaintiff’s  

only claim would depend on the outcome of the arbitration  

proceeding in a foreign country over which the courts in India  

would have no jurisdiction. The cause of action would clearly  

be contingent/speculative. There would be no existing cause of  

action. The plaint itself would be liable to be rejected under  

Order VII Rule 11(a). In any event, as noticed above, no interim  

relief could be granted unless it is in aid of and ancillary to the  

main relief that may be available to a party on final  

determination of rights in a suit. This view will find support  

from a number of judgments of this Court.

-  - 166

Page 167

180. In the State     of     Orissa     vs.     Madan     Gopal     Rungta,  50   at  

page 35 this Court held:

“….An interim relief can be granted only in aid or,  and as ancillary to, the main relief which may be  available to the party on final determination of his  rights in a suit or proceeding……”

181. Following the above Constitution Bench, this Court in  

Cotton     Corporation     Limited     vs.     United     Industrial     Bank  51    

held:

“10……But power to grant temporary injunction was  conferred in aid or as auxiliary to the final relief that  may be granted. If the final relief cannot be granted  in terms as prayed for, temporary relief in the same  terms can hardly if ever be granted. In State of  Orissa v. Madan Gopal Rungta a Constitution Bench  of this Court clearly spelt out the contours within  which interim relief can be granted. The Court said  that ‘an interim relief can be granted only in aid of,  and as ancillary to, the main relief which may be  available to the party on final determination of his  rights in a suit or proceeding’. If this be the purpose  to achieve which power to grant temporary relief is  conferred, it is inconceivable that where the final  relief cannot be granted in the terms sought for  because the statute bars granting such a relief ipso  facto the temporary relief of the same nature cannot  be granted…..”  

182. The legal position is reiterated in Ashok     Kumar     Lingala    

vs.     State     of     Karnataka.  52   

50  AIR 1952 SC 12

51  (1983) 4 SCC 625   52  (2012) 1 SCC 321

-  - 167

Page 168

183.  In matters pertaining to arbitration, the suit would  

also  be barred under Section 14(2) of the Specific Relief Act.  

Although the provision exists in Section 37 of the Specific  

Relief Act, 1963, for grant of temporary/perpetual injunction,  

but the existence of cause of action would be essential under  

this provision also. Similar would be the position under Section  

38 of the Specific Relief Act.     

184. Claim for a Mareva Injunction in somewhat similar  

circumstances came up for consideration in England before the  

House of Lords in Siskina     (Cargo     Owners)   Vs. Distos  

Compania     Navieria     SA     (supra)  .  In this case, cargo owners  

had a claim against a Panamanian company.  The dispute had  

no connection with England.  The defendant’s only ship had  

sunk and there were insurance proceeds in England to which  

the defendant was entitled.  The cargo owners sought leave to  

serve the writ on the defendant under what was then RSC  

Order 11, Rule 1(1)(i).  Mocatta, J. gave leave and at the same  

time granted an injunction in the terms asked for in Paragraph  

2 of the writ petition.  Subsequently, Kerr, J. set aside the  

notice of the writ but maintained the injunction pending in  

appeal.  On the cargo-owners appeal, the Court of Appeal by a  

-  - 168

Page 169

majority reversed the judgment of Kerr, J. and restored the  

Mareva injunction as originally granted by Mocatta, J.  The  

matter reached the House of Lords by way of an appeal against  

the majority judgment of the Court of Appeal.  The House of  

Lords on appeal held that there was no jurisdiction to  

commence substantive proceedings in England. Therefore, the  

writ and all subsequent proceedings in the action had to be set  

aside. Consequently there could be no Mareva injunction.  It  

was held that a Mareva injunction was merely an interlocutory  

injunction and such an injunction could only be granted as “.

… ancillary and incidental to the pre-existing cause of action”.  

185. Lord Diplock observed that “it is conceded that the cargo  

owners’  claim for damages for breach of contract does not of  

itself fall within any of the sub-rules of Order 11, Rule 1(1); nor  

does their claim for damages for tort.”  It is further observed  

that “what is contended by the counsel for the cargo-owners  is  

that if the action is nevertheless allowed to proceed, it will  

support a claim for Mareva injunction restraining the ship  

owners from disposing of their assets within the jurisdiction  

until judgment and payment of the damages awarded thereby;  

and that this of itself is sufficient to bring the case within sub-

rule (i) which empowers the High Court to give leave for service  

-  - 169

Page 170

of its process on persons outside the jurisdictions”.  

Interpreting Order 11 Rule 1(i), it was held that the word used  

in sub-rule (i) are terms of legal art.  The sub-rule speaks of  

“the action” in which a particular kind of relief, “an injunction”  

is sought.  This pre-supposes the existence of a cause of action  

on which to found “the action”.  A right to obtain an  

interlocutory injunction is not a cause of action.  It cannot stand  

on its own.  It is dependent upon there being a pre-existing  

cause of action against the defendant arising out of an  

invasion, actual or threatened by him, of a legal or equitable  

right of the plaintiff for the enforcement of which the defendant  

is amenable to the jurisdiction of the Court.  The right to  

obtain an interlocutory injunction is merely ancillary and  

incidental to the pre-existing cause of action.  It is granted to  

preserve the status quo pending the ascertainment by the  

Court of the rights of the parties and the grant to the plaintiff  

of the relief to which his cause of action entitles him, which  

may or may not include a final injunction.  

186.  As noticed earlier, the position is no different in  

India.  Therefore it appears that under the law, as it stands  

today, an inter-parte suit simply for interim relief pending  

arbitration outside India would not be maintainable.

-  - 170

Page 171

187.  It appears after the aforesaid observations were  

made in Siskina (Cargo Owners) (supra), necessary  

amendments were made in the English Law viz. Section 37(1)  

of the Supreme Court Act, 1981.  The provision was specifically  

made for grant of Mareva injunction by Section 25 of the Civil  

Jurisdiction and Judgments Act, 1982.   

189. The after effects of Siskina (Cargo Owners) (supra) were  

duly noticed by Steven Gee QC MA (Oxon) in his book titled  

Mareva Injunctions and Anton Piller Relief, Fourth Edition, as  

under:-

(i) The English Court would not assert  

a substantive jurisdiction over a  

defendant just because he had  

assets within the jurisdiction.  The  

contrary proposition would have had  

the unsatisfactory consequence as  

observed by Lord Diplock in Siskina  

that the Court would find itself  

asserting jurisdiction over a  

foreigner to decide the merits of  

substantive proceedings which had  

nothing to do with England.  

(ii) There was no jurisdiction to grant  

Mareva relief unless and until the  

plaintiff had an accrued right of  

-  - 171

Page 172

action.

(iii) There was no jurisdiction to preserve assets  

within the jurisdiction of the Court which  

would be needed to satisfy a claim against the  

defendant if it eventually succeeded regardless  

of where the merits of the substantive claim  

were to be decided.  According to the other, the  

position in relation to the free-standing  

interlocutory injunction relief has been eroded  

by a succession of developments.  

190. Thereafter, in a subsequent judgment in Channel     Tunnel    

Group     Ltd.     &     Anr.   Vs. Balfour     Beatty     Construction     Ltd.     &    

Ors.,  53   Lord Mustill summed up the principle for grant of  

interim relief as follows:-

“For present purposes it is sufficient to say that the  doctrine of Siskina, put at its highest, is that the  right to an interlocutory injunction cannot exist in  isolation, but is always incidental to and dependent  on the enforcement of a substantive right, which  usually although not invariably takes the shape of a  cause of action.  If the underlying right itself is not  subject to the jurisdiction of the English Court, then  that Court should never exercise its power under  Section 37(1) by way of interim relief.”   

191. However, on facts in the Channel Tunnel case (supra), it  

was found that “if this is a correct appreciation of the doctrine,  

it does not apply to the present case.”   

53  (1993) AC 334

-  - 172

Page 173

192. From the above, it is apparent that the injunctive relief  

was granted in Channel Tunnel case in view of the statutory  

provisions contained in Section 37(1) of the Supreme Court  

Act, 1981.  This is made further clear by the following  

observations:-

“We are concerned here with powers which the  Court already possesses under Section 37 of the Act  of 1981.  The only question is whether the court  ought permanently and unconditionally to renounce  the possibility of exercising such powers in a case  like the present.  I am unable to see why the fact  that Parliament is contemplating the specific grant  of interim powers, not limited to interlocutory  injunctions, in support of arbitrations but has not  yet chosen to do so should shed any light on the  powers of the court under existing law.  It may be  that if and when section 25 is made applicable to  arbitrations, the court will have to be very cautious  in the exercise of its general powers under section  37 so as not to conflict with any restraint which the  legislature may have imposed on the exercise of the  new and specialized powers.”  

193. The decision in Channel Tunnel would not support the  

proposition that injunctive relief could be granted under  

Section 9 of the Arbitration Act, 1996, as no corresponding  

provision to Section 37(1) of the English Supreme Court Act,  

1981 exists under the Indian legislation.   

194. Mr. Sorabjee has also referred to the principle that no suit  

allows for grant of interim injunction simplicitor and that an  

-  - 173

Page 174

interim injunction had to be granted only in aid of a final  

injunction/principle relief claimed in the suit.  He made a  

reference to the Constitution Bench decision of this Court in  

State     of     Orissa   Vs. Madan     Gopal     Rungta     (supra)  .  He also  

referred to the judgment of the House of Lords in Fourie Vs.  

Le     Roux     (supra)  .  The House of Lords after referring to the  

decision in Siskina and Channel Tunnel observed as follows:-

“On the other hand, if the leave had been upheld, or  if the defendant had submitted to the jurisdiction, it  would still have been open to the defendant to argue  that the grant of a Mareva injunction in aid of the  foreign proceedings in Cyprus was impermissible,  not on strict jurisdictional grounds but because such  injunctions should not be granted otherwise than as  ancillary to substantive proceedings in England.”  [emphasis supplied]

195. However, the House of Lords pointed out in Paragraph 31  

of the judgment that the relief can now be granted under  

English Law by virtue of express provision contained in Section  

25 of the Civil Jurisdiction and Judgment Act, 1982, as  

extended to the Civil Jurisdiction and Judgments Act (Interim  

Relief) Order, 1997.  This order enables the High Court “to  

grant interim relief” in relation to “proceedings that have been  

or are about to be commenced in a foreign state”.   

196.    So far as the Indian Law is concerned, it is settled that  

the source “of a Court’s power to grant interim relief is  

-  - 174

Page 175

traceable to Section 94 and in exceptional cases Section 151  

CPC.  CPC pre-supposes the existence of a substantive suit for  

final relief wherein the power to grant an interim relief may be  

exercised only till disposal thereof.   

197. In this view of the matter, it is patent that there is no  

existing provision under the CPC or under the Arbitration Act,  

1996 for a Court to grant interim measures in terms of Section  

9, in arbitrations which take place outside India, even though  

the parties by agreement may have made the Arbitration Act,  

1996 as the governing law of arbitration.  

CONCLUSION     :-   

198. In view of the above discussion, we are of the considered  

opinion that the Arbitration Act, 1996 has accepted the  

territoriality principle which has been adopted in the  

UNCITRAL Model Law. Section 2(2) makes a declaration that  

Part I of the Arbitration Act, 1996 shall apply to all arbitrations  

which take place within India. We are of the considered opinion  

that Part I of the Arbitration Act, 1996 would have no  

application to International Commercial Arbitration held  

outside India. Therefore, such awards would only be subject to  

the jurisdiction of the Indian courts when the same are sought  

to be enforced in India in accordance with the provisions  

-  - 175

Page 176

contained in Part II of the Arbitration Act, 1996.  In our  

opinion, the provisions contained in Arbitration Act, 1996  

make it crystal clear that there can be no overlapping or  

intermingling of the provisions contained in Part I with the  

provisions contained in Part II of the Arbitration Act, 1996.

199.    With utmost respect, we are unable to agree with the  

conclusions recorded in the judgments of this Court in Bhatia  

International (supra) and Venture Global Engineering  

(supra). In our opinion, the provision contained in Section 2(2)  

of the Arbitration Act, 1996 is not in conflict with any of the  

provisions either in Part I or in Part II of the Arbitration Act,  

1996. In a foreign seated international commercial arbitration,  

no application for interim relief would be maintainable under  

Section 9 or any other provision, as applicability of Part I of the  

Arbitration Act, 1996 is limited to all arbitrations which take  

place in India. Similarly, no suit for interim injunction  

simplicitor would be maintainable in India, on the basis of an  

international commercial arbitration with a seat outside India.  

200.   We conclude that Part I of the Arbitration Act, 1996 is  

applicable only to all the arbitrations which take place within  

the territory of India.

-  - 176

Page 177

201. The judgment in Bhatia International (supra) was  

rendered by this Court on 13th March, 2002.  Since then, the  

aforesaid judgment has been followed by all the High Courts as  

well as by this Court on numerous occasions.  In fact, the  

judgment in Venture Global Engineering (supra) has been  

rendered on 10th January, 2008 in terms of the ratio of the  

decision in Bhatia International (supra).  Thus, in order to do  

complete justice, we hereby order, that the law now declared  

by this Court shall apply prospectively, to all the arbitration  

agreements executed hereafter.

202.  The reference is answered accordingly.      

...............…………………..CJI.                                          [S.H.KAPADIA]

…….…………………………..J.                                                        [D.K.JAIN]

.………………………………….j                                                [SURINDER SINGH NIJJAR]

………………………………….J. [RANJANA PRAKASH DESAI]

..………………………………..J.                   [JAGDISH SINGH KHEHAR]

NEW DELHI; SEPTEMBER 06, 2012.

-  - 177