Proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 can not be maintained to challenge a foreign award, defined as one, under that enactment
Having regard to the precedential unanimity, so to say, about the manner of applicability of BALCO in respect of agreements entered into and awards rendered earlier, with respect to the law of the seat of arbitration (or the curial law) excluding applicability of Part I of the Act, and the unambiguous intention of the parties in the present case (expressed in Clause 12.4.2) that the seat of arbitration was London, where the ICC arbitration proceedings were in fact held, and the awards rendered, this court is of the opinion that the impugned judgment cannot be sustained. (Para 23)
Noy vallesina engineering spa, v. Jindal Drugs Limited & Ors.
Civil Appeal No. 8607 Of 2010
26 November, 2020
Counsel for the Appellant: Learned Senior Counsel Mr. Joydeep Gupta,
Counsel for the Respondents: Learned Senior Counsel Mr. Jay Salva
The Hon’ble Supreme Court comprising of Justice S.Ravindra Bhat and Justice Indira Banerjee reiterated in a case that International commercial arbitration awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996
On 30.01.1995 entered into four related agreements with Engineering Chur AG (Enco) to set up an ascorbic acid plant in India. One of them was “Engineering Contract for Ascorbic for Acid Plant (“ECAAP” or “Plant contract”). Under the plant contract, Enco agreed to provide Jindal with technical information and basic engineering documentation for the construction, commission, operation and maintenance of the Ascorbic Acid Plant. ECAAP as well as the other three agreements had an arbitration clause. In March 1995, with the consent of the respondent, Enco assigned ECAAP to NV Engineering. All the obligations of Enco towards Jindal were taken over by NV Engineering.
Disputes arose between Jindal and NV Engineering. The latter terminated the agreement and claimed damages. On 31.10.1996, Jindal filed a request for arbitration under the ECAAP, i.e. the plant contract, before the International Court of Arbitration (ICC), Paris. The Tribunal rejecting Jindal’s claim awarded NV Engineering SFr.44,33,416 (Swiss Francs) towards its counterclaims under the ECAAP. On 20.2.2000 Jindal filed a petition before the Bombay High Court under Section 34 of the Act challenging the partial award. The High Court by an order of a Single Judge dated 6.2.20024 held that the since the partial award was a foreign award and hence a challenge through a petition was not maintainable under Section 34 of the Act. Jindal preferred an appeal against that order before the Division Bench The Division Bench relied on the judgments of this court, i.e. Bhatia International v. Bulk Trading S. A. & Anr and Venture Global Engineering v. Satyam Computer Services Ltd. & Anr to hold that proceedings under Section 34 of the Act could be validly maintained to challenge a foreign award. It is against this judgment the present appeal is preferred.
Learned counsel for the Appellants contended that (i) The three-judge decision in Bhatia International and the subsequent holding in Venture Global were both held to be incorrect in the larger, five judges ruling in Bharat Aluminium Company vs Kaiser Aluminium Technical ServicesInc. (ii) Even the caveat in BALCO that a class of foreign awards made prior to its pronouncement cannot aid Jindal’s essential argument with respect to maintainability of a challenge under Section 34. (iii) According to the “Shashoua principle”, the designation of a “seat” of the arbitration would carry with it “something akin to an exclusive jurisdiction clause”. (iv) Relying on Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. counsel argued that the order holding that the petition under Section 34 was not maintainable was not appealable.
Learned counsel for the respondents contended that (i) arbitration agreements entered into before the decision in BALCO, and disputes which arose under them, would continue to be bound by the pre-BALCO rules. (ii) Though the ECAAP stated that the arbitration was to be in London, under the ICC. Clause 12.4.1 clearly stated that the contract would be governed by Indian law,
Rejecting the High Court’s decision of relying upon the judgments in Bhatia International amd Venture Global, the Court referred to its judgment in BALCO wherein the legal question was concluded as follows:
In view of the above discussion, we are of the considered opinion that the Arbitration Act, 1996 has accepted the territoriality principle which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within India. We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to international commercial arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996. In our opinion, the provisions contained in the Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996. (Para 194 of BALCO)
Dealing with the Law governing the seat of the arbitration, the court referred to a number of judgments including BGS SOMA JV v. National Hydro Electric Power Corporation 2020 (4) SCC 234, IMAX Corporation v. E-City Entertainment (India) (P.) Ltd 2017 (5) SCC 33 and Roger Shashoua v. Mukesh Sharma, 2009 EWHC 957 (Comm). The Court then reproduced relevant portions from its judgment in Government of India v Vedanta Ltd 2020 SCC Online (SC) 749 in the following words:
“(iii) The courts before which the foreign award is brought for recognition and enforcement would exercise “secondary” or “enforcement” jurisdiction over the award, to determine the recognition and enforceability of the award in that jurisdiction.
(iv) We will now briefly touch upon the four types of laws which are applicable in an international commercial arbitration, and court proceedings arising therefrom. These are:
a) The governing law determines the substantive rights and obligations of the parties in the underlying commercial contract. The parties normally make a choice of the governing law of the substantive contract; in the absence of a choice of the governing law, it would be determined by the tribunal in accordance with the conflict of law rules, which are considered to be applicable.
b) The law governing the arbitration agreement must be determined separately from the law applicable to the substantive contract. The arbitration agreement constitutes a separate and autonomous agreement, which would determine the validity and extent of the arbitration agreement; limits of party autonomy, the jurisdiction of the tribunal, etc.
c) The curial law of the arbitration is determined by the seat of arbitration. In an international commercial arbitration, it is necessary that the conduct of the arbitral proceedings are connected with the law of the seat of arbitration, which would regulate the various aspects of the arbitral proceedings. The parties have the autonomy to determine the choice of law, which would govern the arbitral procedure, which is referred to as the lex arbitri, and is expressed in the choice of the seat of arbitration.
The curial law governs the procedure of the arbitration, the commencement of the arbitration, appointment of arbitrator/s in exercise of the default power by the court, grant of provisional measures, collection of evidence, hearings, and challenge to the award.
The courts at the seat of arbitration exercise supervisory or “primary” jurisdiction over the arbitral proceedings, except if the parties have made an express and effective choice of a different lex arbitri, in which event, the role of the courts at the seat will be limited to those matters which are specified to be internationally mandatory and of a nonderogable nature.
d) The lex fori governs the proceedings for recognition and enforcement of the award in other jurisdictions. Article III of the New York Convention provides that the national courts apply their respective lex fori regarding limitation periods applicable for recognition and enforcement proceedings; the date from which the limitation period would commence, whether there is power to extend the period of limitation. The lex fori determines the court which is competent and has the jurisdiction to decide the issue of recognition and enforcement of the foreign award, and the legal remedies available to the parties for enforcement of the foreign award. ( Relevant portions reproduced from Government of India v Vedanta Ltd, 2020 SCC Online (SC) 749)
Applying the above principles in the facts of the present case, the Court observed the following:
Having regard to the precedential unanimity, so to say, about the manner of applicability of BALCO in respect of agreements entered into and awards rendered earlier, with respect to the law of the seat of arbitration (or the curial law) excluding applicability of Part I of the Act, and the unambiguous intention of the parties in the present case (expressed in Clause 12.4.2) that the seat of arbitration was London, where the ICC arbitration proceedings were in fact held, and the awards rendered, this court is of the opinion that the impugned judgment cannot be sustained. (Para 23)
Answering the contention of the Appellant that the appeal against an order granting enforcement of a foreign arbitration award is mot maintainable, the Court referred to its Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2011) 8 SCC 333, Union of India v Simplex Infrastructures Ltd, 2017 (14) SCC 225 and Kandla Export Corpn. v. OCI Corpn 35(2018) 14 SCC 715 and observed the following:
In view of the categorical holdings in the judgments of this court, Jindal’s appeal to the Division Bench, (Appeal No. 492/2006) is not maintainable. However, in view of the above decisions, and the express terms of Section 50, NV Engineering’s appeal (Appeal. No. 740/2006), against the order of the single judge (to the extent it refuses enforcement) is maintainable. (Para 25)
Concluding, the court held:
This court has not considered the merits of the substantive challenge to the enforcement order, because the parties were not heard and therefore, it would not be fair to comment on it. Further, Jindal has proceeded on the assumption that its appeal to the Division Bench on this aspect is pending. In view of the finding of this court that such an appeal (against an order of enforcement) is untenable by reason of Section 50, the merits of Jindal’s objections to the single judge’s order, are open for it to be canvassed in appropriate proceedings. Such proceedings cannot also be a resort to any remedy under the Code of Civil Procedure. In the event Jindal chooses to avail of such remedy, the question of limitation is left open, as this court is conscious of the fact that Fuerst Day Lawson36 is a decision rendered over 10 years ago; it settled the law decisively and has been followed in later judgments. It cannot be said that Jindal was ignorant of the law. (Para 26)
Consequently, the appeal was allowed and the order of the division bench was set aside. The first respondent was directed to pay Rs.1, 50,000 in costs.
View/Download Judgment: Noy vallesina engineering spa, v. Jindal Drugs Limited & Ors.
Kalidharun K M
