REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION   

CIVIL APPEAL NO.4269  ___         OF 2011 (Arising out of SLP(C) No.16371 of 2008)

Videocon Industries Limited ……..Appellant

Versus

Union of India and another        ……..Respondents

J U D G M E N T

G.S. Singhvi,  J.

1. Leave granted.

2. Whether the Delhi High Court could entertain the petition filed by the  

respondents under Section 9 of the Arbitration and Conciliation Act, 1996  

(for  short,  “the  Act”)  for  grant  of  a  declaration  that  Kuala  Lumpur  

(Malaysia) is contractual and juridical seat of arbitration and for issue of a  

direction to the arbitral tribunal to continue the hearing at Kuala Lumpur in

terms of  clause 34 of Production Sharing Contract  (PSC) is  the question  

which arises for consideration in this appeal.

3. Respondent No.1 – Government of India owns petroleum resources  

within the area of India’s territorial waters and exclusive economic zones.  

Respondent No.2 is an arm of the Ministry of Petroleum and Natural Gas.  

On 28.10.1994, a PSC was executed between respondent No.1 on the one  

hand and a consortium of four companies consisting of Oil and Natural Gas  

Corporation  Limited,  Videocon  Petroleum Limited,  Command  Petroleum  

(India)  Private  Limited  and  Ravva  Oil  (Singapore)  Private  Limited  

(hereinafter referred to as “the Contractor”) in terms of which the latter was  

granted an exploration licence and mining lease to explore and produce the  

hydro carbon resources owned by respondent  No.1.   Subsequently,  Cairn  

Energy U.K. was substituted in place of Command Petroleum (India) Private  

Limited and the name of the Videocon Petroleum Limited was changed to  

Petrocon India Limited, which merged the appellant – Videocon Industries  

Limited.  For the sake of convenience, the relevant clauses of Articles 33, 34  

and 35 of the PSC are extracted below:

“33.1 Indian Law to Govern

Subject to the provisions of Article 34.12, this Contract shall  be governed and interpreted in accordance with the laws of  India.

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33.2 Laws of India Not to be Contravened

Subject to Article 17.1 nothing in this Contract shall entitle  the Contractor to exercise the rights, privileges and powers  conferred upon it by this Contract in a manner which will  contravene the laws of India.

34.3 Unresolved Disputes

Subject to the provisions of this Contract, the Parties agree  that  any  matter,  unresolved  dispute,  difference  or  claim  which cannot be agreed or settled amicably within twenty  one  (21)  days  may be  submitted  to  a  sole  expert  (where  Article 34.2 applies) or otherwise to an arbitral tribunal for  final decision as hereinafter provided.   

34.12.Venue and Law of Arbitration Agreement

The  venue  of  sole  expert,  conciliation  or  arbitration  proceedings  pursuant  to  this  Article,  unless  the  Parties  otherwise agree, shall be Kuala Lumpur, Malaysia, and shall  be  conducted  in  the  English  language.   Insofar  as  practicable,  the  Parties  shall  continue  to  implement  the  terms  of  this  Contract  notwithstanding  the  initiation  of  arbitral  proceedings  and  any  pending  claim  or  dispute.  Notwithstanding  the  provisions  of  Article  33.1,  the  arbitration agreement contained in this Article 34 shall  be  governed by the laws of England.

35.2 Amendment

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

4. In 2000, disputes arose between the respondents and the contractor  

with respect to correctness of certain cost recoveries and profit.  Since the  

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parties could not resolve their disputes amicably, the same were referred to  

the arbitral tribunal under clause 34.3 of the PSC.  The arbitral tribunal fixed  

28.3.2003 as the date of hearing at Kuala Lumpur (Malaysia),  but due to  

outbreak of epidemic SARS, the arbitral  tribunal  shifted the venue of  its  

sittings to Amsterdam in the first instance and, thereafter, to London.  In its  

meeting held on 29.6.2003 at Amsterdam, the arbitral tribunal issued various  

directions in Arbitration Case No.1 of 2003.  On the next day, the arbitral  

tribunal issued similar directions in Arbitration Case Nos.2 and 3 of 2003.  

On 19.8.2003, the arbitral tribunal issued revised time schedule for filing of  

the  statement  of  claim,  reply  and  counter  claim,  reply  to  counter  claim,  

documents, affidavit  of admission and denial of documents in Arbitration  

Case No.3 of 2003 and fixed the case for further proceedings to be held at  

London on 12.12.2003.   By  another  order  dated  30.10.2003,  the  arbitral  

tribunal directed that the hearing of the application filed by the claimants for  

taking  on  record  the  supplementary  claim will  take  place  at  London  on  

15.11.2003, on which date,  the following order was passed in Arbitration  

Case No.3 of 2003:

“By consent of parties, seat of the Arbitration is shifted to  London. Parties  will  deposit  Rs.25,000 each  as  administrative  cost  with the Presiding Arbitrator.”

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5. Thereafter,  the  following  proceedings  were  held  by  the  arbitral  

tribunal at London:

(i) 6.2.2004  –  Interim  Award  pronounced  in  Case  No.1  of  2003 pronounced.

(ii) 7.2.2004 – proceedings  held in  Arbitration  Case  No.2 of  2003.

(iii) 17.3.2004 – Case No.2 of 2003 fixed for 13-19.5.2004 for  final arguments.  

(iv) 17.3.2004  –  Case  No.3  of  2003  fixed  for  recording  of  evidence from 3.6.2004 to 9.6.2004.

(v) 17.3.2004 – Case No.3 of 2003 fixed for arguments from  20-26.7.2004.

(vi) 27.3.2004 – final arguments rescheduled to 16-20.5.2004 in  Case No.2 of 2003.

(vii) 25.11.2004 –  Arbitral  Tribunal  declared  that  it  will  pass  award in Case No.2 of 2003 and further partial  award in  Case No.1 of 2003.

(viii) 3.2.2005 – Case No.2 of 2003 fixed for 25-26.2.2005 for  hearing on the application for clarification filed on behalf of  the Government of India.

(ix) 12.3.2005 – The Tribunal declared that it will finalise the  award in Case No.3 of 2003 and cross-objections in Case  No.1 of 2003.

(x) 31.3.2005 – Partial award passed in Case No.3 of 2003.   

6. Respondent No.1 challenged partial award dated 31.3.2005 by filing a  

petition in the High Court of Malaysia at Kuala Lumpur.  On being noticed,  

the  appellant  questioned  the  maintainability  of  the  case  before  the  High  

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Court of Malaysia by contending that in view of clause 34.12 of the PSC  

only the English Courts have the jurisdiction to entertain any challenge to  

the award.   

7. After  filing  the  petition  before  the  High  Court  of  Malaysia,  the  

respondents made a request to the tribunal to conduct the remaining arbitral  

proceedings  at  Kuala  Lumpur,  but  their  request  was  rejected  vide  order  

dated 20.4.2006 and it was declared that the remaining arbitral proceedings  

will be held in London.   

8. At  that  stage,  the  respondents  filed  OMP  No.255  of  2006  under  

Section 9 of the Act in Delhi High Court for stay of the arbitral proceedings.  

They filed another OMP No.329 of 2006 questioning award dated 31.3.2005  

on the issue of exchange rate.  The appellant objected to the maintainability  

of OMP No.255 of 2006 and pleaded that the Courts in India do not have the  

jurisdiction to entertain challenge to the arbitral award. The learned Single  

Judge of the Delhi High Court overruled the objection of the appellant and  

held that the said High Court has the jurisdiction to entertain the petition  

filed  under  Section 9  of  the  Act.   The  learned  Single  Judge  extensively  

referred  to  the  judgment  of  this  Court  in  Bhatia  International  v.  Bulk  

Trading S.A. (2002) 4 SCC 105 and observed:

“The ratio of Bhatia International, in my understanding, is  that  the provisions of Part-I  of  the Indian Arbitration Act  

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would  apply  to  international  commercial  arbitrations  held  outside  India,  unless  the  parties  by  agreement  express  or  implied, exclude all or any of its provisions.

It is noteworthy that the respondent, while challenging the  jurisdiction of this Court to entertain the present petition, has  not  disputed  the  applicability  of  Part  I  of  the  Indian  Arbitration Act to international commercial arbitrations held  outside  India.   It  is  not  the  case  of  the  respondent  that  section 9 of the Indian Arbitrations Act does not apply to  international  commercial  arbitrations  held  outside  India.  What, in fact, learned senior counsel for the respondent has  sought to contend before this Court is that the parties herein,  by adopting the English Law as the proper law governing  the  arbitration  agreement,  have  expressly  excluded  the  applicability  of  the  Indian  Arbitration  Act,  and  consequently, this Court has no jurisdiction to entertain the  present petition.  This contention of the respondent has been  resisted by learned senior counsel for the petitioner on the  ground that English law governs the substantive aspects of  the  arbitration  agreement,  whilst  the  procedural  aspect  thereof is governed by the curial law, that is, the procedural  law of the country where the seat of arbitration is.  It is thus  contended by learned senior counsel for the petitioner that  the juridical seat of arbitration being in Kuala Lumpur, it is  the Malaysian laws that  would govern the conduct  of  the  arbitral  proceedings.  Learned  senior  counsel  for  the  respondent  has  countervailed  the  said  averment  of  the  petitioner  by  submitting  that  London,  and  not,  Kuala  Lumpur is the ‘designated seat’ of arbitration in view of the  order  dated  15.11.2003  passed  by  the  Arbitral  Tribunal  whereby the Arbitral  Tribunal recorded the consent of the  parties and shifted the seat of arbitration to London.  In view  of the petitioner having already conceded to London as the  juridical seat of arbitration, it is thus contended by learned  counsel for the respondent that the petitioner cannot know  insist on Kuala Lumpur being the seat of arbitration.

The averments made by the respondent, without prejudice to  the veracity thereof, entail an examination on merit and thus  cannot be accepted at this preliminary stage.  Whether the  Courts at Kuala Lumpur or London have the jurisdiction to  decide upon the seat  of arbitration squarely hinges on the  

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procedural  law  governing  the  arbitration  agreement.  However,  in  a  peculiar  situation  such  as  the  present  one  where the governing procedural law is yet to be determined,  I  am  of  the  view  that  a  question  regarding  the  seat  of  arbitration can be best  decided by the Court to which the  parties or to which the dispute is most closely connected.  It  is important to recall that in the instant case the parties have  expressly  stated  in  Article  33.1  of  the  PSC that  the  laws  applicable to the contract would be the laws in force in India  and that the “Contract shall be governed and interpreted in  accordance with the laws of India”.  These words are wide  enough to engulf every question arising under the contract  including the disputes between the parties and the mode of  settlement.  It was in India that the PSC was executed.  The  form of the PSC is closely related to the system of law in  India.  It is also apparent that the PSC is to be performed in  India with the aid of Indian workmen whose conditions of  service are regulated by Indian laws.  Moreover, whilst the  petitioner  is  an  important  portfolio  of  the  Government  of  India, the respondent is also a company incorporated under  the  Indian  laws.   The  contract  has  in  every  respect  the  closest and most real connection with the Indian system of  law and  it  is  by  that  law that  the  parties  have  expressly  evinced  their  intention  to  be  bound  in  all  respects.   The  arbitration agreement is contained in one of the clauses of  the contract, and not in a separate agreement.  In the absence  of any indication to the contrary, the governing law of the  contract or the “proper law” (in the words of Dicey) of the  contract  being Indian law,  it  is  that  system of  law which  must  necessarily  govern  matters  concerning  arbitration,  although  in  certain  respects  the  law  of  the  place  of  arbitration may have its  relevance in regard to procedural  matters.

There  is  no  gainsay  that  the  Courts  observe  extreme  circumspection whilst affording relief under section 9 of the  Indian Arbitration  Act,  lest  the  annals  of  party  autonomy  and sanctity of the arbitral tribunal – the hallmarks of any  arbitration – are jeopardized.  It is to be appreciated that the  object  underlying  the  grant  of  interim  measures  under  section 9 of the Indian Arbitration Act is to facilitate and sub  serve any ongoing arbitral proceedings.

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It is much apparent that the disparate stands taken by both  parties qua the seat of arbitration has resulted in a veritable  impasse in the arbitral proceedings in the present case.  The  petitioner  has  brought  to  our  notice  that  the  proceedings  initiated by it at the High Court Kuala Lumpur challenging  the Partial award have been virtually brought to a standstill  owing the objections raised by the respondent on grounds of  jurisdiction.  The  petitioner  has  already  expressed  its  dissidence about the English Court deciding the question of  seat of arbitration for the reason that for the English Court to  assume jurisdiction, it is the place of arbitration which is the  relevant factor.  In such a situation, of the Indian Court does  not  adjudicate  upon  the  present  petition,  the  arbitral  proceedings  between  the  parties  will  invariably  end  in  a  stalemate.  This, I am afraid, would not only be inimical to  the interests of the parties but also affront to section 9 of the  Indian Arbitration, the underlying object whereof is to sub  serve and facilitate arbitral proceedings.”   

9. Shri R.F. Nariman, learned senior counsel appearing for the appellant  

argued that the impugned order is liable to be set aside because the learned  

Single  Judge misconstrued and misapplied  the  judgment of  this  Court  in  

Bhatia International v. Bulk Trading S.A.  (supra) and erroneously held  

that the Delhi High Court has jurisdiction to decide O.M.P. No.255 of 2006.  

Learned  counsel  further  argued  that  the  learned  Single  Judge  failed  to  

appreciate that the reliefs prayed for in O.M.P. No.255 of 2006 could not  

have been granted on an application filed under Section 9 of the Act because  

stay of arbitral proceedings is beyond the scope of that section.  Learned  

senior  counsel  emphasized  that  Section  5  of  the  Act  expressly  bars  

intervention of the Courts except in matters expressly provided for in the Act  

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and, therefore, even if the petition filed by the respondents under Section 9  

could be treated as maintainable, the High Court did not have jurisdiction  

over the arbitration proceedings because the same are governed by the laws  

of England. Shri Nariman then argued that after having expressly consented  

to the shifting of the seat of arbitration from Kuala Lumpur to Amsterdam in  

the  first  instance  and  effectively  taken  part  in  the  proceedings  held  at  

London till 31.3.2005, respondent No.1 is estopped from claiming that the  

seat of arbitration continues to be at Kuala Lumpur.  Learned senior counsel  

submitted  that  the  learned  Single  Judge  was  not  justified  in  rejecting  

objection to the maintainability of the petitions filed by respondent No.1 in  

the Delhi High Court merely because the appellant had earlier filed O.M.P.  

No.179 of 2003 before the High Court.  He submitted that the doctrine of  

waiver  and acquiescence  cannot  be  pressed  into  service  for  deciding the  

issue relating to jurisdiction of the Delhi High Court to entertain the petition  

filed  under  Section 9  of  the  Act.  Shri  Nariman further  submitted  that  if  

respondent  No.1  felt  aggrieved  against  partial  award  it  could  have  filed  

petition under Sections 67 and 68 of the English Arbitration Act, 1996.

10. Shri Gopal Subramaniam, learned Solicitor General submitted that as  

per  the  arbitration  agreement  which  is  binding  on  all  the  parties  to  the  

contract, a conscious decision was taken by them that Kuala Lumpur will be  

the seat of any intended arbitration, Indian law as the law of contract and  

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English law as the law of arbitration and the mere fact that the arbitration  

was held outside Kuala Lumpur due to the outbreak of epidemic SARS, the  

venue  of  arbitration  cannot  be  said  to  have  been  changed  from  Kuala  

Lumpur to London. Learned Solicitor General emphasised that once Kuala  

Lumpur was decided as the venue of arbitration by written agreement, the  

same  could  not  have  been  changed  except  by  amending  the  written  

agreement as provided in clause 35.2 of the PSC.  He then argued that the  

arbitral tribunal was not entitled to determine the seat of arbitration and the  

record of proceedings held on 15.11.2003 at London cannot be construed as  

an  agreement  between  the  parties  for  change  in  the  juridical  seat  of  

arbitration.  He further argued that the PSC was between the Government of  

India  and  ONGC  Ltd.,  Videocon  Petroleum  Ltd.,  Command  Petroleum  

(India) Pvt. Ltd. and Ravva Oil (Singapore) Pvt. Ltd.  and, therefore, the  

venue of arbitration cannot be treated to have been changed merely on the  

basis of the so called agreement between the appellant and the respondents.  

Learned Solicitor General submitted that any change in the PSC requires the  

concurrence by all the parties to the contract and the consent, if any, given  

by two of the parties cannot have the effect of changing the same.  He then  

argued  that  every  written  agreement  on  behalf  of  respondent  No.1  is  

required to be expressed in the name of the President and in the absence of  

any written agreement having been reached between the parties to the PSC  

to  amend  the  same,  the  consent  given  for  shifting  the  physical  seat  of  

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arbitration  to  London  did  not  result  in  change  of  juridical  seat  of  the  

arbitration  which  continues  to  be  Kuala  Lumpur.   In  support  of  this  

argument,  the learned Solicitor General relied upon the judgments of this  

Court in Mulamchand v. State of Madhya Pradesh (1968) 3 SCR 214 and  

State of Haryana v. Lal Chand (1984) 3 SCR 715.  In the end, he argued  

that the provisions of the English Arbitration Act, 1996 would have applied  

only if the seat of arbitration was in England and Wales.  He submitted that  

London cannot be treated as juridical seat of arbitration merely because the  

parties had decided that the arbitration agreement contained in Article 34  

will be governed by the laws of England.   

11. We  have  considered  the  respective  submissions  and  perused  the  

record.

12. We shall first consider the question whether Kuala Lumpur was the  

designated seat or juridical seat of arbitration and the same had been shifted  

to London.  In terms of clause 34.12 of the PSC entered into by 5 parties, the  

seat of arbitration was Kuala Lumpur, Malaysia.   However, due to outbreak  

of epidemic SARS, the arbitral tribunal decided to hold its sittings first at  

Amsterdam and then at London and the parties did not object to this.  In the  

proceedings  held  on  14th and  15th October,  2003  at  London,  the  arbitral  

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tribunal recorded the consent of the parties for shifting the juridical seat of  

arbitration to London.  Whether this amounted to shifting of the physical or  

juridical seat of arbitration from Kuala Lumpur to London?  The decision of  

this would depend on a holistic consideration of the relevant clauses of the  

PSC.  Though, it may appear repetitive, we deem it necessary to mention  

that as per the terms of agreement, the seat of arbitration was Kuala Lumpur.  

If the parties wanted to amend clause 34.12, they could have done so only by  

written  instrument  which  was  required  to  be  signed  by  all  of  them.  

Admittedly, neither there was any agreement between the parties to the PSC  

to shift the juridical seat of arbitration from Kuala Lumpur to London nor  

any  written  instrument  was  signed  by  them for  amending  clause  34.12.  

Therefore,  the  mere  fact  that  the  parties  to  the  particular  arbitration  had  

agreed for shifting of the seat of arbitration to London cannot be interpreted  

as anything except physical change of the venue of arbitration from Kuala  

Lumpur to London.  In this connection, reference can usefully be made to  

Section 3 of the English Arbitration Act, 1996, which reads as follows:

“3.The seat of the arbitration.

In this Part “the seat of the arbitration” means the juridical seat  of the arbitration designated—

(a) by the parties to the arbitration agreement, or

(b) by any arbitral or other institution or person vested by the  parties with powers in that regard, or

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(c) by the arbitral  tribunal  if  so authorised by the parties,  or  determined,  in  the  absence  of  any  such  designation,  having  regard  to  the  parties’  agreement  and  all  the  relevant  circumstances.”

13. A reading of the above reproduced provision shows that under the  

English law the seat of arbitration means juridical seat of arbitration, which  

can  be  designated  by  the  parties  to  the  arbitration  agreement  or  by  any  

arbitral or other institution or person empowered by the parties to do so or  

by the arbitral tribunal, if so authorised by the parties.  In contrast, there is  

no provision in the Act under which the arbitral tribunal could change the  

juridical seat of arbitration which, as per the agreement of the parties, was  

Kuala Lumpur.  Therefore, mere change in the physical venue of the hearing  

from Kuala Lumpur to Amsterdam and London did not amount to change in  

the juridical seat of arbitration.  This is expressly indicated in Section 53 of  

the English Arbitration Act, 1996, which reads as under:

“53. Place where award treated as made.

Unless otherwise agreed by the parties, where the seat of the  arbitration is in England and Wales or Northern Ireland,  any  award  in  the  proceedings  shall  be  treated  as  made  there,  regardless of where it  was signed, despatched or delivered to  any of the parties.”

14. In  Dozco India P. Ltd. v. Doosan Infracore Co. Ltd. 2010 (9) UJ  

4521  (SC),  the  learned  designated  Judge  while  exercising  power  under  

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Section 11(6) of the Act, referred to the following passage from Redfern v.  

Hunter:

“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 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 the arbitration changes. The seat of the arbitration  remains  the  place  initially  agreed  by  or  on  behalf  of  the  parties.”

15. The next issue, which merits consideration is whether the Delhi High  

Court could entertain the petition filed by the respondents under Section 9 of  

the Act.  In Bhatia International v. Bulk Trading S.A. (supra), the three-

Judge Bench considered the important question whether Part I of the Act is  

applicable to the international arbitration taking place outside India.  After  

noticing the scheme of the Act and argument of the appellant that Part I of  

the Act would apply only to the cases in which the venue of arbitration is in  

India, the Court observed:

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“A reading of the provisions shows that the said Act applies  to  arbitrations  which  are  held  in  India  between  Indian  nationals  and  to  international  commercial  arbitrations  whether held in India or out of India. Section 2(1)(f) defines  an  international  commercial  arbitration.  The  definition  makes  no  distinction  between  international  commercial  arbitrations held in India or outside India. An international  commercial arbitration may be held in a country which is a  signatory to either the New York Convention or the Geneva  Convention  (hereinafter  called  “the  convention  country”).  An international  commercial  arbitration  may  be  held  in  a  non-convention country. The said Act nowhere provides that  its provisions are not to apply to international commercial  arbitrations which take place in a non-convention country.  Admittedly, Part  II  only applies to arbitrations which take  place in a convention country. Mr. Sen fairly admitted that  Part  II  would  not  apply  to  an  international  commercial  arbitration which takes place in a non-convention country.  He also fairly admitted that there would be countries which  are not signatories either to the New York Convention or to  the  Geneva  Convention.  It  is  not  possible  to  accept  the  submission  that  the  said  Act  makes  no  provision  for  international commercial  arbitrations which take place in a  non-convention country.

Now  let  us  look  at  sub-sections  (2),  (3),  (4)  and  (5)  of  Section 2. Sub-section (2) of Section 2 provides that Part I  would apply where the place of arbitration is in India. To be  immediately noted, that it is not providing that Part I shall  not apply where the place of arbitration is not in India. It is  also not providing that Part I will  “only” apply where the  place of arbitration is in India (emphasis supplied). Thus the  legislature  has  not  provided that  Part  I  is  not  to  apply to  arbitrations which take place outside India. The use of the  language  is  significant  and  important.  The  legislature  is  emphasising  that  the  provisions  of  Part  I  would  apply  to  arbitrations which take place in India, but not providing that  the provisions of Part I will not apply to arbitrations which  take place out of India. The wording of sub-section (2) of  Section 2 suggests that the intention of the legislature was to  make  provisions  of  Part  I  compulsorily  applicable  to  an  arbitration,  including  an  international  commercial  

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arbitration,  which  takes  place  in  India.  Parties  cannot,  by  agreement, override or exclude the non-derogable provisions  of Part I in such arbitrations. By omitting to provide that Part  I  will  not  apply  to  international  commercial  arbitrations  which take place outside India the effect would be that Part I  would  also  apply  to  international  commercial  arbitrations  held out of India. But by not specifically providing that the  provisions  of  Part  I  apply  to  international  commercial  arbitrations held out of India, the intention of the legislature  appears  to  be  to  ally  (sic allow)  parties  to  provide  by  agreement that Part I or any provision therein will not apply.  Thus in respect of arbitrations which take place outside India  even the non-derogable provisions of Part I can be excluded.  Such an agreement may be express or implied.

If read in this manner there would be no conflict between  Section 1 and Section 2(2). The words “every arbitration” in  sub-section (4) of Section 2 and the words “all arbitrations  and to all proceedings relating thereto” in sub-section (5) of  Section 2 are wide. Sub-sections (4) and (5) of Section 2 are  not  made  subject  to  sub-section  (2)  of  Section  2.  It  is  significant that sub-section (5) is made subject to sub-section  (4)  but  not  to  sub-section  (2).  To  accept  Mr.  Sen’s  submission would necessitate adding words in sub-sections  (4) and (5) of Section 2, which the legislature has purposely  omitted to add viz. “subject to provision of sub-section (2)”.  However read in the manner set out hereinabove there would  also be no conflict between sub-section (2) of Section 2 and  sub-sections (4) and/or (5) of Section 2.

That  the  legislature  did  not  intend  to  exclude  the  applicability  of  Part  I  to  arbitrations,  which  take  place  outside India, is further clear from certain other provisions of  the said Act. Sub-section (7) of Section 2 reads as follows:

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

As  is  set  out  hereinabove  the  said  Act  applies  to  (a)  arbitrations  held  in  India  between  Indians,  and  (b)  international commercial arbitrations. As set out hereinabove  international commercial arbitrations may take place in India  or outside India. Outside India, an international commercial  

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arbitration may be held in a convention country or in a non- convention  country.  The  said  Act  however  only  classifies  awards as “domestic awards” or “foreign awards”. Mr. Sen  admits that provisions of Part II make it clear that “foreign  awards” are only those where the arbitration takes place in a  convention  country.  Awards  in  arbitration  proceedings  which  take  place  in  a  non-convention  country  are  not  considered to be “foreign awards” under the said Act. They  would thus not be covered by Part II. An award passed in an  arbitration which takes place in India would be a “domestic  award”. There would thus be no need to define an award as a  “domestic award” unless the intention was to cover awards  which  would  otherwise  not  be  covered  by  this  definition.  Strictly speaking, an award passed in an arbitration which  takes  place  in  a  non-convention  country  would  not  be  a  “domestic  award”.  Thus  the  necessity  is  to  define  a  “domestic award” as including all awards made under Part I.  The  definition  indicates  that  an  award  made  in  an  international  commercial  arbitration  held  in  a  non- convention  country  is  also  considered  to  be  a  “domestic  award”.

(emphasis supplied)

The Court then referred to Section 9 of the Act which empowers the  

Court to make interim orders and proceeded to observe:

“Thus under Section 9 a party could apply to the court (a)  before,  (b)  during  arbitral  proceedings,  or  (c)  after  the  making  of  the  arbitral  award  but  before  it  is  enforced  in  accordance with Section 36. 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”. Thus it  is clear that an application for interim measure can be made  to the courts in India,  whether or not the arbitration takes  place in India, before or during arbitral proceedings. Once an  award  is  passed,  then  that  award  itself  can  be  executed.  Sections 49 and 58 provide that awards covered by Part II  are  deemed  to  be  a  decree  of  the  court.  Thus  “foreign  

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awards” which are  enforceable  in India  are  deemed to be  decrees.  A  domestic  award  has  to  be  enforced  under  the  provisions of the Civil Procedure Code. All that Section 36  provides is that an enforcement of a domestic award is to  take place after the time to make an application to set aside  the  award  has  expired  or  such  an  application  has  been  refused. Section 9 does suggest that once an award is made,  an application for interim measure can only be made if the  award is a “domestic award” as defined in Section 2(7) of  the said Act. Thus where the legislature wanted to restrict  the applicability of Section 9 it has done so specifically. We see no substance in the submission that there would be  unnecessary interference by courts  in  arbitral  proceedings.  Section 5 provides that no judicial authority shall intervene  except where so provided. Section 9 does not permit any or  all  applications.  It  only  permits  applications  for  interim  measures  mentioned  in  clauses  (i)  and  (ii)  thereof.  Thus  there  cannot  be  applications  under  Section  9  for  stay  of  arbitral proceedings or to challenge the existence or validity  of  the  arbitration  agreements  or  the  jurisdiction  of  the  Arbitral  Tribunal.  All  such  challenges  would  have  to  be  made before the Arbitral Tribunal under the said Act.”

The  three-Judge  Bench  recorded  its  conclusion  in  the  following  

words:

“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 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.”

(emphasis supplied)

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16. In  Venture  Global  Engineering  v.  Satyam  Computer  Services  

Limited (2008) 4 SCC 190, a two-Judge Bench was called upon to consider  

whether  the  Court  of  Additional  Chief  Judge,  City  Civil  Court,  

Secunderabad had the jurisdiction to entertain the suit for declaration filed  

by  the  appellant  to  set  aside  the  award  passed  by  the  sole  arbitrator  

appointed  at  the  instance  of  respondent  No.1  despite  the  fact  that  the  

arbitrator had conducted the proceedings outside India.  The trial Court had  

entertained  and  allowed  the  application  filed  by  respondent  No.1  under  

Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC) and rejected  

the plaint.  The Andhra Pradesh High Court confirmed the order of the trial  

Court.  Before this Court, reliance was placed by the appellant on the ratio of  

Bhatia International v. Bulk Trading S.A. (supra) and it was argued that  

the trial Court had the jurisdiction to entertain the suit.  On behalf of the  

respondents, it was argued that the trial Court did not have the jurisdiction to  

entertain the suit because the award was made outside India.  The Division  

Bench accepted the argument made on behalf of the appellant and observed:

“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  

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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 International.

The learned Senior Counsel for the respondent based on para  26 submitted that in the case of foreign award which was  passed outside India is not enforceable in India by invoking  the  provisions  of  the Act  or  CPC. However,  after  critical  analysis of para 26, we are unable to accept the argument of  the learned Senior Counsel for the respondent. Paras 26 and  27  start  by  dealing  with  the  arguments  of  Mr  Sen  who  argued that Part I is not applicable to foreign awards. It is  only in the sentence starting at the bottom of para 26 that the  phrase “it must immediately be clarified” that the finding of  the Court is rendered. That finding is to the effect that an  express  or  implied  agreement  of  parties  can  exclude  the  applicability of Part I. The finding specifically states: “But if  not so excluded, the provisions of Part I will also apply to all  ‘foreign awards’.” This exception which is carved out, based  on agreement of  the parties,  in para 21 (placita  e to f)  is  extracted below:  

“21. … By omitting to provide that Part I will not  apply  to  international  commercial  arbitrations  which take place outside India the effect would be  that  Part  I  would  also  apply  to  international  commercial arbitrations held out of India. But by  not  specifically  providing  that  the  provisions  of  Part  I  apply  to  international  commercial  arbitrations held out of India, the intention of the  legislature appears to be to ally (sic allow) parties  to  provide  by  agreement  that  Part  I  or  any  provision therein will not apply. Thus in respect of  arbitrations  which  take  place  outside  India  even  the  non-derogable  provisions  of  Part  I  can  be  excluded.  Such an agreement may be express or  implied.”

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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.”

17. We may now advert to the judgment of the learned Single Judge of  

the Gujarat High Court in  Hardy Oil and Gas Limited v. Hindustan Oil  

Exploration Company Limited and others (2006) 1 GLR 658.  The facts  

of that case were that an agreement was entered into between Unocal Bharat  

Limited,  Hardy  Oil  and  Gas  Limited,  Netherland  B.V.  (Hardy),  

Infrastructure  Leasing  and  Financial  Services  Limited,  Housing  

Development Finance Corporation Limited and Hindustan Oil Exploration  

Company Limited on 14.10.1998.  The agreement had an arbitration clause.  

A dispute having arisen between the parties, the matter was referred to the  

arbitral  tribunal.   During the pendency of  the  arbitration  proceedings,  an  

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application was filed by the appellant in the District Court, Vadodara under  

Section  9  of  the  Act.   A  preliminary  objection  was  raised  to  the  

maintainability  of  that  petition.   The  learned  District  Judge accepted  the  

objection.   The  learned  Single  Judge  of  Gujarat  High  Court  referred  to  

clause 9.5 of the agreement, which was as under:

“9.5 Governing Law and Arbitration

1. This Agreement (except for the provisions of Clause 9.5.4  relating to arbitration) shall be governed by and construed in  accordance with the substantive laws of India.

2.  Any  dispute  or  difference  of  whatever  nature  arising  under,  out  of,  or  in  connection  with  this  Agreement,  including any question  regarding its  existence,  validity  or  termination, which the parties are unable to resolve between  themselves within sixty (60) days of notification by one or  more  Parties  to  the  other(s)  that  a  dispute  exists  for  the  purpose of this Clause 9 shall at the instance of any Party be  referred  to  and  finally  resolved  by  Arbitration  under  the  rules  of  the  London  Court  of  International  Arbitration  (SLCIA),  which  Rules  (Rules)  are  deemed  to  be  incorporated by reference into this clause.

3. The Tribunal shall consist of two arbitrators who shall be  Queen's  Counsel,  practicing  at  the  English  Bar  in  the  Commercial Division of the High Court, one to be selected  by  the  Parties  invoking  the  Arbitration  clause  acting  unanimously  and  one  to  be  selected  by  the  other  shareholders acting unanimously, and one umpire who shall  also be a Queen's Counsel, practicing at the English Bar in  the Commercial Division of this High Court. If the parties  are unable to agree on the identity of the umpire within 15  days  from  the  day  on  which  the  matter  is  referred  to  arbitration,  the  umpire  shall  be  chosen  and  appointed  by  LCIA. Notwithstanding Article 3.3 of the Rules, the Parties  agree that LICA may appoint a British umpire. No arbitrator  shall  be  a  person  or  former  employee  or  agent  of,  or  consultant  or  counsel  to,  any  Party  or  any  Associated  

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Company or any Party or in any way otherwise connected  with any of the Parties.

4. The place of arbitration shall be London and the language  of arbitration shall be English. The law governing arbitration  will be the English law.

5. Any decision or award of an arbitral tribunal shall be final  and binding on the Parties.”

The learned Single Judge referred to various judgments of this Court  

including  Bhatia  International  v.  Bulk Trading  S.A.  (supra),  Shreejee  

Traco  (I)  Pvt.  Ltd.  v.  Paperline  International  Inc. (2003)  9  SCC 79,  

National Thermal Power Corporation v. Singer Company (1992) 3 SCC  

551 and upheld the order of the learned District Judge by observing that in  

terms of clause 9.5.4 of the agreement, the place of arbitration was London  

and the law governing arbitration was the English law.  The learned Single  

Judge referred to paragraph 32 of the judgment in Bhatia International v.  

Bulk Trading S.A. (supra) and observed that once the parties had agreed to  

be  governed  by  any  law other  than  Indian  law in  cases  of  international  

commercial arbitration, then that law would prevail and the provisions of the  

Act cannot be invoked questioning the arbitration proceedings or the award.  

This  is  evident  from paragraph 11.3 of  the  judgment,  which is  extracted  

below:

“However, their Lordships observed in Para.32 that 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  

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provisions. In that case 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 would not apply. Thus, even  as per the decision relied upon by learned advocate for the  appellant, if the parties have agreed to be governed by any  law  other  than  Indian  law  in  cases  of  international  commercial arbitration, same would prevail. In the case on  hand, it is very clear even on plain reading of Clause 9.5.4  that the parties' intention was to be governed by English law  in respect of arbitration. It is not possible to give a narrow  meaning  to  this  clause  as  suggested  by  learned  Senior  Advocate Mr. Thakore that it would apply only in case of  dispute on Arbitration Agreement. It can be interpreted only  to  mean that  in  case  of  any dispute  regarding arbitration,  English law would apply. When the clause deals with the  place and language of arbitration with a specific provision  that the law governing arbitration will be the English law,  such a narrow meaning cannot be given. No other view is  possible  in  light  of  exception  carved  out  of  Clause  9.5.1  relating  to  arbitration.  Term  Arbitration,  in  Clause  9.5.4  cannot  be  taken  to  mean  arbitration  agreement.  Entire  arbitral  proceedings  have  to  be  taken  to  be  agreed  to  be  governed by English law.”

18. In our opinion, the learned Single Judge of Gujarat High Court had  

rightly followed the conclusion recorded by the three-Judge Bench in Bhatia  

International v. Bulk Trading S.A. (supra) and held that the District Court,  

Vadodara did not have the jurisdiction to entertain the petition filed under  

Section 9 of the Act because the parties had agreed that the law governing  

the arbitration will be English law.    

19. In the present case also, the parties had agreed that notwithstanding  

Article  33.1,  the  arbitration  agreement  contained  in  Article  34  shall  be  

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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.

20. In the result, the appeal is allowed.  The impugned order is set aside  

and  the  petition  filed  by  the  respondents  under  Section  9  of  the  Act  is  

dismissed.

………………………….…J. [R.V. Raveendran]

……………………………..J.  [G.S. Singhvi]

New Delhi May 11, 2011.

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