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REPORTABLE  

IN THE SUPREME COURT OF INDIA    

CIVIL ORIGINAL JURISDICTION    

CIVIL APPEAL NO. 4628 OF 2018      

Union of India        …Appellant(s)   

 VERSUS  

 Hardy Exploration and Production    …Respondent(s)   (India) INC    

J U D G M E N T      Dipak Misra, CJI      

The present appeal arose from the final judgment and order dated  

27th July, 2016 passed by the High Court of Delhi at New Delhi in FAO  

No. 59 of 2016 whereby the Division Bench of the High Court had  

dismissed the appeal preferred by the Union of India, the appellant  

herein, assailing the order dated 9th July, 2015 passed by the learned  

Single Judge in OMP No. 693 of 2013 and the order dated 20th January,  

2016 passed in Review Petition No. 400 of 2015 in OMP No. 693 of  

2013.  The Division Bench took note of the fact that the appellant had

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challenged the legal propriety and correctness of the award made by the  

Arbitrators in favour of the respondents under Section 34 of the  

Arbitration and Conciliation Act, 1996 (for brevity „the Act‟). The said  

application was contested by the respondent raising many a ground, but  

the thrust of the objection related to the maintainability of the application  

under Section 34 of the Act.  It was contended before the High Court that  

the courts in India do not have the jurisdiction to entertain an application  

under Section 34 of the Act to challenge the legality of the award in  

question.  The learned Single Judge, vide order dated 9th July, 2015,  

accepted the preliminary objection and came to hold that in view of the  

terms of the agreement and the precedents holding the field, the Indian  

courts have no jurisdiction to entertain the application.  Being of this  

view, the learned Single Judge did not advert to the other grounds urged  

in the petition.  

2. Being grieved by the aforesaid order, the Union of India preferred  

an appeal under Section 37(2) of the Act before the Division Bench  

which concurred with the opinion expressed by the learned Single  

Judge.    

3. In appeal by special leave, the two-Judge Bench in Union of India  

v. Hardy Exploration and Production (India) INC1 referred to certain  

                                                 1 (2018) 7 SCC 374

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decisions from foreign jurisdictions, namely, Naviera Amazonica  

Peruana S.A. v. Compania Internacional De Seguros Del Peru2,  

Hiscox v. Outhwaite3, Union of India v. McDonnell Douglas Corpn.4,  

C v. D5, C v. D6, Braes of Doune Wind Farm (Scotland) Limited v.  

Alfred McAlpine Business Services Limited7, Shashoua and Ors. v.  

Sharma8, Sulamerica Cia Nacional De Seguros S.A. and Ors. v.  

Enesa Engenharia SA & Ors.9, (1) Enercon GMBH (2) Wobben  

Properties GMBH v. Enercon (India) Ltd.10 and Govt. Of India v.  

Petrocon India Ltd.11  Apart from the above, the decisions rendered in  

Sumitomo Heavy Industries Ltd. v. ONGC Ltd. and Others12, Bhatia  

International v. Bulk Trading S.A. and Another13, Venture Global  

Engineering v. Satyam Computer Services Ltd. & another14,  

Videocon Industries Limited v. Union of India and another15, Dozco  

India Private Ltd. v. Doosan Infracore Co. Limited16, Bharat  

                                                 2 (1988) (1) Lloyd’s Law Reports 116  3 (1992) 1 AC 562  4 (1993) 2 Lloyd’s Law Reports 48  5 (2007) EWCA Civ 1282 (CA)  6 (2008) 1 Lloyd’s Law Reports 239  7 (2008) EWHC 426 (TCC)  8 (2009) EWHC 957 (Comm.)  9 (2012) EWCA Civ 638  10 (2012) EWHC 3711 (Comm.)  11 (2016) SCC Online MYFC 35  12 (1998) 1 SCC 305  13 (2002) 4 SCC 105  14 (2008) 4 SCC 190  15 (2011) 6 SCC 161  16 (2011) 6 SCC 179

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Aluminium Company v. Kaiser Aluminium Technical Services INC17,  

Enercon (India) Ltd. & Others v. Enercon GMBH & Another18,  

Reliance Industries Limited and another v. Union of India19,  

Harmony Innovation Shipping Ltd. v. Gupta Coal India Limited and  

another20, Union of India v. Reliance Industries Limited and  

Others21, Eitzen Bulk A/s & others v. Ashapura Minechem Limited  

and another22, Imax Corporation v. E-City Entertainment (India) Pvt.  

Lid.23 and Roger Shashoua and others v. Mukesh Sharma and  

others24 were also referred to.  

4. The two-Judge Bench noted:-  

“17. The argument of both the learned senior  counsel mainly centered around to one question  which, in our opinion, does arise in the appeal,  namely, when the arbitration agreement specify the  “venue” for holding the arbitration sittings by the  arbitrators but does not specify the “seat”, then on  what basis and by which principle, the parties have  to decide the place of “seat” which has a material  bearing for determining the applicability of laws of a  particular country for deciding the post award  arbitration proceedings.    

xxx    xxx   xxx    

                                                 17 (2012) 9 SCC 552  18 (2014) 5 SCC 1  19 (2014) 7 SCC 603  20 (2015) 9 SCC 172  21 (2015) 10 SCC 213  22 (2016) 11 SCC 508  23 (2017) 5 SCC 331  24 (2017) 14 SCC 722

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20. One of the arguments of Dr. Singhvi, learned  senior counsel was that the decision rendered by  Three Judge Bench in the case of Sumitomo Heavy  Industries Ltd. vs. ONGC Ltd. & Others (supra) on  which great reliance was placed by Mr. Tushar  Mehta, learned ASG has lost its efficacy, though  approved by another recent decision of Three  Judge Bench in Bharat Aluminum Company vs.  Kaiser Aluminum Technical Services INC (supra),  for the reason that it was rendered under the  Arbitration Act, 1940, which now stands repealed by  Arbitration Act, 1996 and secondly, it was rendered  in relation to Section 9 of the Foreign Awards  (Recognition and Enforcement) Act, 1961, which  also now stands repealed by 1996 Act.    21.  It was his submission that while approving the  ratio of Sumitomo Heavy Industries Ltd. (supra)  these two factors which have some relevance on its  efficacy do not seem to have been examined in the  case of Bharat Aluminum Company (supra) .    22.  Dr. Singhvi also urged that what is the effect of  UNCITRAL Model Law, when they are made part of  the arbitration agreement for deciding the question  of “seat” has also not been so far decided in any of  the earlier decisions.”  

5. Appreciating the same, the learned Judges opined thus:-  

“23. In our opinion, though, the question regarding  the “seat” and “venue” for holding arbitration  proceedings by the arbitrators arising under the  Arbitration Agreement/ International Commercial  Arbitration Agreement is primarily required to be  decided keeping in view the terms of the arbitration  agreement itself, but having regard to the law laid  down by this Court in several decisions by the  Benches of variable strength as detailed above, and  further taking into consideration the aforementioned  submissions urged by the learned counsel for the  parties and also keeping in view the issues involved

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in the appeal, which frequently arise in International  Commercial Arbitration matters, we are of the  considered view that this is a fit case to exercise our  power under Order VI Rule 2 of the Supreme Court  Rules, 2013 and refer this case (appeal ) to be dealt  with by the larger Bench of this Court for its  hearing.”  

 That is how the matter has been placed before us.  

6. At the very beginning, we may note with profit that Mr. Tushar  

Mehta, learned Additional Solicitor General appearing for the Union of  

India and Dr. Abhishek Manu Singhvi, learned senior counsel appearing  

for the respondent very fairly stated that no reference was called for and  

there is no justification to answer the reference, but to deal with the case  

on its own merits.  In spite of the said submission advanced at the Bar,  

we think it appropriate to put the controversy to rest as the two-Judge  

Bench thought it appropriate to refer the matter to a larger Bench.  

7. It may be usefully noted that the two-Judge Bench has also taken  

note of some of the decisions rendered by the Constitution Bench and  

some by a strength of three Judges and two Judges.  One of the  

submissions that was advanced before the two-Judge Bench was that in  

Bharat Aluminium Company (supra), the decision in Sumitomo Heavy  

Industries Ltd. (supra) had not been examined.  To appreciate the  

controversy, first we have to analyse what has been said in Sumitomo  

Heavy Industries Ltd. (supra).  The controversy in the said case related

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to laws governing arbitration under the Arbitration Act, 1940 (hereinafter  

referred to as „the 1940 Act‟).  The learned Judges referred to some  

passages from paragraph 10 which contains a chapter on „The  

Applicable Law and the Jurisdiction of the Court‟. The three-Judge  

Bench reproduced some passages from sub-title „Laws Governing the  

Arbitration‟ which read thus:-  

"An agreed reference to arbitration involves two  groups of obligations. The first concerns the mutual  obligations of the parties to submit future disputes,  or an existing dispute to arbitration, and to abide by  the award of a tribunal constituted in accordance  with the agreement. It is now firmly established that  the arbitration agreement which creates these  obligations is a separate contract, distinct from the  substantive agreement in which it si usually  embedded, capable of surviving the termination of  the substantive agreement and susceptible of  premature termination by express or implied  consent, or by repudiation or frustration, in much the  same manner as in more ordinary forms of contract.  Since this agreement has a distinct life of its own, it  may in principle be governed by a proper law of its  own, which need not be the same as the law  governing the substantive contact.       The second group of obligations,  consisting of what is generally referred to as the  `curial law' of the arbitration, concerns the manner  in which the parties and the arbitrator are required  to conduct the reference of a particular dispute.  According to the English theory of arbitration, these  rules are to be ascertained by reference to the  express or implied terms of the agreement to  arbitrate. The being so, it will be found in the great  majority of cases that the curial law, i.e. the law  governing the conduct of the reference, is the same

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as the law governing the obligation to arbitrate. It is,  however, open to the parties to submit, expressly or  by implication, the conduct of the reference to  different law from the one governing the underlying  arbitration agreement. In such a case, the court  looks first at the arbitration agreement to see  whether the dispute is one which should be  arbitrated, and which has validly been made the  subject of the reference; it then looks to the curial  law to see how that reference should be conducted;  and then returns to the first law in order to give  effect to the resulting award.    

xxx  xxx   xxx    It may therefore be seen that problems arising out  of an arbitration may, at least in theory, call for the  application of any one or more of the following laws-    1. The proper law of the contract, i.e. the law  governing the contract which creates the  substantive rights of the parties, in respect of which  the dispute has arisen.    2. The proper law of the arbitration agreement, i.e.  the law governing the obligation of the parties to  submit the disputes to arbitration, and to honour an  award.    3. The curial law, i.e. the law governing the conduct  of the individual reference.     xxx   xxx   xxx    

1. The proper law of the arbitration agreement  governs the validity of the arbitration agreement, the  question whether a dispute lies within the scope of  the arbitration agreement; the validity of the notice  of arbitration; the constitution of the tribunal; the  question whether an award lies within the  jurisdiction of the arbitrator; the formal validity of the  award; the question whether the parties have been

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discharged from any obligation to arbitrate future  disputes.  

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

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

xxx   xxx   xxx  

In the absence of express agreement, there is  a strong prima facie presumption tha the parties  intend the curial law to be the law of the „seat‟ of the  arbitration, i.e., the place at which the arbitration is  to be conducted, on the ground that that is the  country most closely connected with the  proceedings.  So in order to determine the curial law  in the absence of an express choice by the parties it  is first necessary to determine the seat of the  arbitration, by construing the agreement to arbitrate”  

 After reproducing the same, the Court opined:-  

“We think that our conclusion that the curial law  does not apply to the filing of an award in court  must, accordingly, hold good. We find support for  the conclusion in the extracts from Mustill and Boyd  which we have quoted earlier. Where the law  governing the conduct of the reference is different  from the law governing the underlying arbitration  agreement, the court looks to the arbitration  agreement to see if the dispute is arbitrable, then to  the curial law to see how the reference should be  conducted, "and then returns to the first law in order  to give effect to the resulting award.    The law which would apply to the filing of the award,  to its enforcement and to its setting aside would be  the law governing the agreement to arbitrate and

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the performance of that agreement. Having regard  to the clear terms of Clause 17 of the contract  between the appellant and the first respondent, we  are in no doubt that the law governing the contract  and the law governing the rights and obligations of  the parties arising from their agreement to arbitrate,  and, in particular, their obligations to submit  disputes to arbitration and to honour the award, are  governed by the law of India; nor is there any  dispute in this behalf. Section 47 of the Indian  Arbitration Act, 1940, reads thus:    "47. Act to apply to all arbitrations. - Subject to the  provisions of Section 46, and save in so far as is  otherwise provided by any law for the time being in  force, the provisions of this Act shall apply to all  arbitrations and to all proceedings thereunder    Provided that an arbitration award otherwise  obtained may with the consent of all the parties  interested be taken into consideration as a  compromise or adjustment of a suit by any Court  before which the suit is pending."  

Eventually, the Court concluded:-  

“By reason of Section 9(b), the 1961 Act does not  apply to any award made on an arbitration  agreement governed by the law of India. The 1961  Act, therefore, does not apply to the arbitration  agreement between the appellant and the first  respondent. The 1940 Act, applies to it and, by  reason of Section 14(2) thereof, the courts in India  are entitled to receive the award made by the  second respondent. We must add in the interests of  completeness that is not the case of the appellant  that the High Court at Bombay lacked the territorial  jurisdiction to do so.”  

8. On a careful reading of the aforesaid decision, it is quite vivid that  

the controversy related to the 1940 Act and the discussion pertained to

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foreign award under the Foreign Awards (Recognition and Enforcement)  

Act, 1961 (for brevity, „the 1961 Act‟).  Thus, the principle laid down  

therein is in no way applicable to the concept of determination of  

jurisdiction as has been dealt with in BALCO case and also the  

conception of implied exclusion as Bhatia International (supra) states.   

Quite apart from that, we shall also advert to the later authorities how  

they have understood the said decision.  

9. In Bhatia International (supra), a Bench of this Court was dealing  

with the applicability of Section 9 of the Act and the jurisdiction of the  

courts in India.  Referring to various aspects, the Court held:-  

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

10. A contention was raised before the Court that when the parties had  

agreed that the arbitration shall be as per the ICC Rules, by necessary  

implication, Section 9 would not apply.  The learned Judges referred to  

Article 23 of the ICC Rules and, thereafter, came to hold that:-

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“Thus Article 23 of the ICC rules permits parties to  apply to a competent judicial authority for interim  and conservatory measures. Therefore, in such  cases an application can be made under Sectionof  the said Act.     Lastly it must be stated that the said Act does  not appear to be a well drafted legislation. Therefore  the High Courts of Orissa, Bombay, Madras, Delhi  and Calcutta cannot be faulted for interpreting it in  the manner indicated above. However, in our view a  proper and conjoint reading of all the provisions  indicates that Part I is to apply also to international  commercial arbitrations which take place out of  India, unless the parties by agreement, express or  implied exclude it or any of its provisions. Such an  interpretation does not lead to any conflict between  any of the provisions of the said Act. On this  interpretation there is no lacunae in the said Act.  This interpretation also does not leave a party  remedyless. Thus such an interpretation has to be  preferred to the one adopted by the High Courts of  Orissa, Bombay, Madras, Delhi and Calcutta. It will  therefore have to be held that the contrary view  taken by these High Courts is not good law.”  

11. In Indtel Technical Services  Private Ltd. v. W.S. Atkins Rail  

Limited25, the designated Judge was called upon to decide the issue of  

appointment of sole arbitrator.  Analysing the arbitration clause and the  

authority in Lesotho Highlands Development Authority v. Impregilo  

SpA26, the Court came to hold as follows:-  

"It is no doubt true that it is fairly well settled that  when an arbitration agreement is silent as to the law  and procedure to be followed in implementing the  

                                                 25 (2008) 10 SCC 308  26 (2005) 3 WLR 129

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arbitration agreement, the law governing the said  agreement would ordinarily be the same as the law  governing the contract itself. The decisions cited by  Mr Tripathi and the views of the jurists referred to in  NTPC v. Singer Co. case support such a  proposition. What, however, distinguishes the  various decisions and views of the authorities in this  case is the fact that in Bhatia International this Court  laid down the proposition that notwithstanding the  provisions of Section 2(2) of the Arbitration and  Conciliation Act, 1996, indicating that Part I of the  said Act would apply where the place of arbitration  is in India, even in respect of international  commercial agreements, which are to be governed  by the laws of another country, the parties would be  entitled to invoke the provisions of Part I of the  aforesaid Act and consequently the application  made under Section 11 thereof would be  maintainable."  

12. In Reliance Industries Ltd. (I), (supra), the appellant had  

challenged the decision of the High Court of Delhi whereby it had  

entertained the petition preferred under Section 34 of the Act.  The Court  

scanned the clause relating to “Sole expert, conciliation and arbitration”  

and the clause that pertained to “applicable law and arbitration” and  

further other clauses and came to hold that once the parties had  

consciously agreed that the juridical seat of the arbitration would be at  

London and that the agreement would be governed by the laws of  

London, the provisions of Part I of the Act would not be applicable.  

13. In Videocon Industries Limited (supra), the Court referred to  

Section 3 of the English Arbitration Act, 1996 which deals with the seat

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of arbitration and Section 53 that stipulates the place where the award is  

treated as made.  It referred to the authority in Dozco India P. Ltd.  

(supra) and, eventually, came to hold that:-  

"In the present case also, the parties had agreed  that notwithstanding Article 33.1, the arbitration  agreement contained in Article 34 shall be governed  by laws of England. This necessarily implies that the  parties had agreed to exclude the provisions of Part  I of the Act. As a corollary to the above conclusion,  we hold that the Delhi High Court did not have the  jurisdiction to entertain the petition filed by the  respondents under Section 9 of the Act and the  mere fact that the appellant had earlier filed similar  petitions was not sufficient to clothe that High Court  with the jurisdiction to entertain the petition filed by  the respondents."  

14. The Constitution Bench in Bharat Aluminium Company (supra)  

overruled the judgments of this Court in Bhatia International (supra)  

and Venture Global Engineering (supra) and opined:-  

“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.   

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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.”  

 15. Be it noted, the larger Bench ruled that in order to do complete  

justice, the law declared by this Court shall apply prospectively to all the  

arbitration agreements executed after the date of delivery of the  

judgment.  In the said case, the Constitution Bench, while dealing with  

the concept of seat/place/situs of arbitration, referred to the decisions in  

Naviera Amazonica Peuana S.A. v. Compania International de  

Seguros del Peru27and Union of India v. McDonnell Douglas  

Corporation28 and came to hold thus :-   

“76. 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 (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 Geneva Protocol, 1923  states:  

                                                 27

(1998) 1 Lloyd’s Rep 116 (CA)  28

(1993) 2 Lloyd’s Rep 48

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“2. The arbitral procedure, including 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” [Articles V(1)(a) and (e)]. The  aforesaid observations clearly show that the 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:  

“1. (2) 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. The Swiss  Law states:  

“176(I). (1) 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.”  

(Emphasis supplied)  

 77. 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

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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.  

16. In this context, we may carefully analyse what has been stated in  

Harmony Innovation Shipping Limited (supra).  In the said case, the  

Court relied on Reliance Industries Ltd. (I) (supra) and other decisions,  

analysed the arbitration clause and held:-  

“45. Coming to the stipulations in the present  arbitration clause, it is clear as day that if any  dispute or difference would arise under the charter,  arbitration in London to apply; that the arbitrators  are to be commercial men who are members of the  London Arbitration Association; the contract is to be  construed and governed by the English law; and  that the arbitration should be conducted, if the claim  is for a lesser sum, in accordance with small claims  procedure of the London Maritime Arbitration  Association. There is no other provision in the  agreement that any other law would govern the  arbitration clause.  

xxx   xxx   xxx  

48. In the present case, the agreement stipulates  that the contract is to be governed and construed  according to the English law. This occurs in the  arbitration clause. Mr Viswanathan, learned Senior  Counsel, would submit that this part has to be

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interpreted as a part of “curial law” and not as a  “proper law” or “substantive law”. It is his  submission that it cannot be equated with the seat  of arbitration. As we perceive, it forms as a part of  the arbitration clause. There is ample indication  through various phrases like “arbitration in London  to apply”, arbitrators are to be the members of the  “London Arbitration Association” and the contract “to  be governed and construed according to the English  law”. It is worth noting that there is no other  stipulation relating to the applicability of any law to  the agreement. There is no other clause anywhere  in the contract. That apart, it is also postulated that  if the dispute is for an amount less than US $50,000  then, the arbitration should be conducted in  accordance with small claims procedure of the  London Maritime Arbitration Association. When the  aforesaid stipulations are read and appreciated in  the contextual perspective, “the presumed intention”  of the parties is clear as crystal that the juridical  seat of arbitration would be London. In this context,  a passage from Mitsubishi Heavy Industries Ltd. v.  Gulf Bank K.S.C. is worth reproducing:  

“It is of course both useful and frequently  necessary when construing a clause in a  contract to have regard to the overall  commercial purpose of the contract in the  broad sense of the type and general content,  the relationship of the parties and such  common commercial purpose as may clearly  emerge from such an exercise. However, it  does not seem to me to be a proper approach  to the construction of a default clause in a  commercial contract to seek or purport to elicit  some self-contained „commercial purpose‟  underlying the clause which is or may be wider  than the ordinary or usual construction of the  words of each sub-clause will yield.”  

xxx   xxx   xxx

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50. Thus, interpreting the clause in question on the  bedrock of the aforesaid principles it is vivid that the  intended effect is to have the seat of arbitration at  London. The commercial background, the context of  the contract and the circumstances of the parties  and in the background in which the contract was  entered into, irresistibly lead in that direction. We  are not impressed by the submission that by such  interpretation it will put the respondent in an  advantageous position. Therefore, we think it would  be appropriate to interpret the clause that it is a  proper clause or substantial clause and not a curial  or a procedural one by which the arbitration  proceedings are to be conducted and hence, we are  disposed to think that the seat of arbitration will be  at London.  

 51. Having said that the implied exclusion principle  stated in Bhatia International would be applicable,  regard being had to the clause in the agreement,  there is no need to dwell upon the contention raised  pertaining to the addendum, for any interpretation  placed on the said document would not make any  difference to the ultimate conclusion that we have  already arrived at.”  

 17. The aforesaid passages clearly show that the arbitration clause  

has to be appositely read to understand its intention so as to arrive at a  

conclusion on whether it determines the seat or not.  

18. In Reliance Industries Limited (II), the Court, after referring to  

various decisions, came to hold that the applicability of Part I of the Act  

can be excluded by necessary implication if it is found that on the facts  

of the case, either the juridical seat of the arbitration is outside India or

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the law governing the arbitration agreement is a law other than Indian  

law.  Referring to the decision in Harmony Innovation Shipping  

Limited (supra), the Court said:-  

“20. It is interesting to note that even though the law  governing the arbitration agreement was not  specified, yet this Court held, having regard to  various circumstances, that the seat of arbitration  would be London and therefore, by necessary  implication, the ratio of Bhatia International would  not apply.”  

 19. In Eitzen Bulk A/S (supra), the Court analysed the arbitration  

clause that stipulated that the disputes under the COA were to be settled  

and referred to arbitration in London and the English Law would apply.   

Interpreting the said clause, the Court held:-  

“33. We are thus of the view that by Clause 28, the  parties chose to exclude the application of Part I to  the arbitration proceedings between them by  choosing London as the venue for arbitration and by  making English law applicable to arbitration, as  observed earlier. It is too well settled by now that  where the parties choose a juridical seat of  arbitration outside India and provide that the law  which governs arbitration will be a law other than  Indian law, Part I of the Act would not have any  application and, therefore, the award debtor would  not be entitled to challenge the award by raising  objections under Section 34 before a court in India.  A court in India could not have jurisdiction to  entertain such objections under Section 34 in such  a case.  

34. As a matter of fact the mere choosing of the  juridical seat of arbitration attracts the law  applicable to such location. In other words, it would

21  

not be necessary to specify which law would apply  to the arbitration proceedings, since the law of the  particular country would apply ipso jure. The  following passage from Redfern and Hunter on  International Arbitration contains the following  explication of the issue:  

“It is also sometimes said that parties have  selected the procedural law that will govern their  arbitration, by providing for arbitration in a  particular country. This is too elliptical and, as an  English court itself held more recently in Breas of  Doune Wind Farm it does not always hold true.  What the parties have done is to choose a place  of arbitration in a particular country. That choice  brings with it submission to the laws of that  country, including any mandatory provisions of its  law on arbitration. To say that the parties have  “chosen” that particular law to govern the  arbitration is rather like saying that an English  woman who takes her car to France has  “chosen” French traffic law, which will oblige her  to drive on the right-hand side of the road, to give  priority to vehicles approaching from the right,  and generally to obey traffic laws to which she  may not be accustomed. But it would be an odd  use of language to say this notional motorist had  opted for “French traffic law”. What she has done  is to choose to go to France. The applicability of  French law then follows automatically. It is not a  matter of choice.  

 Parties may well choose a particular place of  arbitration precisely because its lex arbitri is one  which they find attractive. Nevertheless, once a  place of arbitration has been chosen, it brings with it  its own law. If that law contains provisions that are  mandatory so far as arbitration are concerned,  those provisions must be obeyed. It is not a matter  of choice any more than the notional motorist is free  to choose which local traffic laws to obey and which  to disregard”.”

22  

 20. In IMAX Corporation (supra), interpreting the arbitration clause  

and the ICC Rules and referring to earlier precedents, the Court ruled:-  

 “39. If in pursuance of the arbitration agreement,  the arbitration took place outside India, there is a  clear exclusion of Part I of the Arbitration Act. In the  present case, the parties expressly agreed that the  arbitration will be conducted according to the ICC  Rules of Arbitration and left the place of arbitration  to be chosen by ICC. ICC in fact, chose London as  the seat of arbitration after consulting the parties.  The arbitration was held in London without demur  from any of the parties. All the awards i.e. the two  partial final awards, and the third final award, were  made in London and communicated to the parties.  We find that this is a clear case of the exclusion of  Part I vide Eitzen Bulk A/S, and the decisions  referred to and followed therein.”  

 21. In Roger Shashoua (supra), apart from dealing with the concept  

of precedents, the two-Judge Bench also scanned the anatomy of the  

arbitration clause and held:-  

  “…the distinction between the venue and the seat  remains. But when a court finds that there is  prescription for venue and something else, it has to  be adjudged on the facts of each case to determine  the juridical seat. As in the instant case, the  agreement in question has been interpreted and it  has been held that London is not mentioned as the  mere location but the courts in London will have the  jurisdiction, another interpretative perception as  projected by the learned Senior Counsel is  unacceptable.”  

23  

22. We may now focus on the discussion and the ultimate conclusion  

in Sumitomo Heavy Industries Ltd.  (supra) and how the later  

decisions under the 1996 Act perceived the same. In Bharat Aluminium  

Corporation (supra) (BALCO-II), the three-Judge Bench dealt with the   

decisions in Sumitomo Heavy Industries Ltd (supra) and Reliance  

Industries Limited (supra) and noted thus:-  

“13. Sumitomo is of no avail to the appellant. In  Sumitomo, there was no specific choice on the law  of arbitration agreement and this Court held that in  absence of such choice, the law of arbitration  agreement would be determined by the substantive  law of the contract. That is not the case in this  agreement.”  

It laid emphasis on Reliance Industries Limited (II) (supra) and  

opined that an application under Section 34 of the 1940 Act was not  

maintainable.   

23. In view of the aforesaid development of law, there is no confusion  

with regard to what the seat of arbitration and venue of arbitration mean.   

There is no shadow of doubt that the arbitration clause has to be read in  

a holistic manner so as to determine the jurisdiction of the Court.  That  

apart, if there is mention of venue and something else is appended  

thereto, depending on the nature of the prescription, the Court can come  

to a conclusion that there is implied exclusion of Part I of the Act.  The  

principle laid down in Sumitomo Heavy Industries Ltd. (supra) has

24  

been referred to in Reliance Industries Limited (II) and distinguished.   

In any case, it has no applicability to a controversy under the Act.  The  

said controversy has to be governed by the BALCO principle or by the  

agreement or by the principle of implied exclusion as has been held in  

Bhatia International.    

24. Thus, we answer the reference accordingly.  

25. Having addressed the reference, we shall advert to the arbitration  

clause to delineate on whether it ousts the jurisdiction of the courts in  

India.  Article 32 of the arbitration agreement reads as follows:-  

“32.1 This Contract shall be governed and  interpreted in accordance with the laws of India.    32.2  Nothing in this Contract shall entitle the  Contractor to exercise the rights, privileges and  powers conferred upon it by this Contract in a  manner which will contravene the laws of India.”  

26.  Article 33 deals with “Sole expert, conciliation and arbitrator”.   

Article 33.9 and 33.12 read thus:-  

“33.9 Arbitration proceedings shall be conducted in  accordance with the UNICITRAL Model Law on  International Commercial Arbitration of 1985 except  that in the event of any conflict between the rules  and the provisions of this Article 33, the provisions  of this Article 33 shall govern.    

xxx   xxx   xxx    33.12 The venue of conciliation or arbitration  proceedings pursuant to this Article unless the  parties otherwise agree, shall be Kuala Lumpur and

25  

shall be conducted in English language. Insofar as  practicable the parties shall continue to implement  the terms of this contract notwithstanding the  initiation of arbitration proceedings and any pending  claim or dispute.”  

    [Emphasis supplied]  

27. It is submitted by Mr. Tushar Mehta, learned Additional Solicitor  

General appearing for the Union of India that there is no specific mention  

of juridical seat but reference is to the venue.  He has also drawn our  

attention to the UNCITRAL Model Law which is referred to in Article 33.9  

of the agreement.  Article 20 of the UNCITRAL Model Law reads as  

follows:-  

“Article 20. Place of arbitration.—(1)The parties are  free to agree on the place of arbitration. Failing such  agreement, 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.    (2) Notwithstanding the provisions of paragraph  (1) of this article, 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 goods, other property or  documents.”  

      [Emphasis added]  

  Thus, Article 20(1) mandates “determination” of “juridical seat”  

while Article 20(2) leaves it open to the Arbitral Tribunal to select  

“venue”.

26  

28. Article 31(3) of the UNCITRAL Model Law is as follows :-  

“Article 31. Form and contents of award.—    (3)The award shall state its date and the place of  arbitration as determined in accordance with article  20(1). The award shall be deemed to have been  made at that place.”   

 29. On a perusal of Articles 20 and 31(3) of the UNCITRAL Model  

Laws, we find that the parties are free to agree on the place of  

arbitration.  Once the said consent is given in the arbitration clause or it  

is interpretably deduced from the clause and the other concomitant  

factors like the case of Harmony Innovation Shipping Ltd. which  

states about the venue and something in addition by which the seat of  

arbitration is determinable. The other mode, as Article 20 of the  

UNCITRAL Model Law provides, is that where the parties do not agree  

on the place of arbitration, the same shall be determined by the Arbitral  

Tribunal. Such a power of adjudication has been conferred on the  

Arbitral Tribunal. Article 31(3) clearly stipulates that the Award shall state  

the date and the place of arbitration as determined in accordance with  

Article 20(1).  

30. In IMAX Corporation (supra), there is reference to the ICC Rules  

and the Rules provide that the place of arbitration shall be fixed by the  

Court unless agreed upon by the parties.  In the said case, the appellant  

had proposed the venue of Arbitration as Paris in France. The

27  

International Court of Arbitration decided that London, United Kingdom  

would be the juridical seat of arbitration in view of Article 14(1) of the ICC  

Rules and, therefore, provided on the basis of Part I of the English  

Arbitration Act, 1996. The three-Judge Bench ruled:-  

“24. In the present case, the arbitration clause  contemplates an award made in pursuance of the  ICC Rules without specifying the applicable law for  the arbitration agreement. It would therefore be  appropriate to hold that the question of validity of  the award should be determined in accordance with  the law of the State in which the arbitration  proceedings have taken place i.e. the English Law.  Though for the purposes of this decision we would  only hold that the conduct of the parties exclude the  applicability of Part I. In other words, where the  parties have not expressly chosen the law  governing the contract as a whole or the arbitration  agreement in particular, the law of the country  where the arbitration is agreed to be held has  primacy.  

 25. Here, an express choice has been made by the  parties regarding the conduct of arbitration i.e. that  a dispute shall be finally settled by arbitration  according to the ICC Rules of Arbitration. The  parties have not chosen the place of arbitration.  They have simply chosen the rules that will govern  the arbitration, presumably aware of the provision in  the rules that the place of arbitration will be decided  by ICC vide Article 14(1) of the ICC Rules. ICC  having chosen London, leaves no doubt that the  place of arbitration will attract the law of UK in all  matters concerning arbitration.”  

  The Court further noticed that in the said case, the seat of  

arbitration had not been specified at all in the arbitration clause.  There

28  

was a stipulation that the arbitration shall be conducted according to the  

ICC Rules and opining on the same, it was observed:-  

“29. We find that in the present case, the seat of  arbitration has not been specified at all in the  arbitration clause. There is however an agreement  to have the arbitration conducted according to the  ICC Rules and thus a willingness that the seat of  arbitration may be outside India. In any case, the  parties having agreed to have the seat decided by  ICC and ICC having chosen London after consulting  the parties and the parties having abided by the  decision, it must be held that upon the decision of  ICC to hold the arbitration in London, the parties  agreed that the seat shall be in London for all  practical purposes. Therefore, there is an  agreement that the arbitration shall be held in  London and thus Part I of the Act should be  excluded.”  

31. In the present case, the place of arbitration was to be agreed upon  

between the parties.  It had not been agreed upon ; and in case of failure  

of agreement, the Arbitral Tribunal is required to determine the same  

taking into consideration the convenience of the parties. It is also  

incumbent on the Arbitral Tribunal that the determination shall be clearly  

stated in the „form and contents of award‟ that is postulated in Article 31.  

There has been no determination.   

32. Be it noted, the word „determination‟ requires a positive act to be  

done.  In the case at hand, the only aspect that has been highlighted by  

Mr. C.U. Singh, learned senior counsel, is that the arbitrator held the  

meeting at Kuala Lumpur and signed the award. That, in our considered

29  

opinion, does not amount to determination.  The clause is categorical.   

The sittings at various places are relatable to venue. It cannot be  

equated with the seat of arbitration or place of arbitration which has a  

different connotation as has been held in Reliance Industries Ltd. (I),  

(II) (supra), Harmony Innovation Shipping Limited (supra) and in  

Roger Shashoua (supra).   

33. The word „determination‟ has to be contextually determined. When  

a „place‟ is agreed upon, it gets the status of seat which means the  

juridical seat.  We have already noted that the terms „place‟ and „seat‟  

are used interchangeably. When only the term „place‟ is stated or  

mentioned and no other condition is postulated, it is equivalent to „seat‟  

and that finalises the facet of jurisdiction. But if a condition precedent is  

attached to the term „place‟, the said condition has to be satisfied so that  

the place can become equivalent to seat. In the instant case, as there  

are two distinct and disjunct riders, either of them have to be satisfied to  

become a place.  As is evident, there is no agreement. As far as  

determination is concerned, there has been no determination. In Ashok  

Leyland Limited and State of T.N. and another29, the Court has  

reproduced the definition of „determination‟ from Law Lexicon, 2nd Edition  

by Aiyar, P. Ramanatha and Black‟s Law Dictionary, 6th Edition. The  

relevant paragraphs read thus:-                                                    29

(2004) 3 SCC 1

30  

“Determination or order.—The expression „determination‟  signifies an effective expression of opinion which ends a  controversy or a dispute by some authority to whom it is  submitted under a valid law for disposal. The expression  „order‟ must have also a similar meaning, except that it  need not operate to end the dispute. Determination or  order must be judicial or quasi-judicial. Jaswant Sugar  Mills Ltd. v. Lakshmi Chand30 (Constitution of India, Article  136).”  

“A „determination‟ is a „final judgment‟ for purposes of  appeal when the trial court has completed its adjudication  of the rights of the parties in the action. Thomas Van  Dyken Joint Venture v. Van Dyken31.”  

  The said test clearly means that the expression of determination  

signifies an expressive opinion. In the instant case, there has been no  

adjudication and expression of an opinion.  Thus, the word „place‟ cannot  

be used as seat. To elaborate, a venue can become a seat if something  

else is added to it as a concomitant. But a place unlike seat, at least as  

is seen in the contract, can become a seat if one of the conditions  

precedent is satisfied.  It does not ipso facto assume the status of seat.  

Thus understood, Kuala Lumpur is not the seat or place of arbitration  

and the interchangeable use will not apply in stricto sensu.   

34. In view of the aforesaid analysis, the irresistible conclusion is that  

the Courts in India have jurisdiction and, therefore, the order passed by  

the Delhi High Court is set aside.  Resultantly, the appeal stands allowed  

                                                 30

AIR 1963 SC 677, 680  31

90 Wis 236, 27 NW 2d 459,463

31  

and the High Court is requested to deal with the application preferred  

under Section 34 of the Act as expeditiously as possible.  There shall be  

no order as to costs.  

                     …………………………….CJI.         (Dipak Misra)                              ……………………………….J.         (A.M. Khanwilkar)        

        …..………………….………..J.                     (Dr. D.Y. Chandrachud)    New Delhi;     September 25, 2018