A NATIONAL THERMAL POWER CORPORATION

~ v.

SINGER COMPANY AND ORS.

MAY 7, 1992

B [T.KOCHU THOMMEN AND S.C. AGRAWAL, JJ.]

-

Arbitration Act, 1940:

\._

Section 1(2)-Applicability of the AcHnternational Commercial ar-

c

bitration agreemenHndian company entering into contract with a foreign

company-Arbitration clause contained in the contrac~Stipulation that laws

in force

in India applicable and Courts of Delhi would have exclusive

jurisdiction-R.ules

of conciliation and arbitration of Intemational Chamber

of Commerce applicable as agreed upon-Dispute ref e"ed to Arbitral

Tribunal constituted

as per these Rules-Award made in London, the seat of

D arbitration-Whether the award is governed by the Arbitration Act, 1940.

Foreign Awards (Recognition and Enforcement) Act, 1961:

Sections 2 and 9--/nternational commercial arbitration agreement

E

-Award made in a foreign

country-Laws in force in India applicable as

agreed upon by parties-Such awar~Whether to be regarded as foreign .......

award or domestic award.

Private International Law :

International contracts--Law governing

the contract-Parties at liberty

>

F

to make choice of the law applicable-Substantive as also procedural-In

absence of choice, presumption that laws of country where arbitration held

.....

applicable-However presumption rebuttable having regard to true intention

of parties--Proper law of CQntrac~What is-Doctrine of renvoi-Applicability

of.

G

Words & Phrases :

'Proper Law of Contract'-Meaning of.

_......_

The appellant Corporation and Respondent Company entered into

H two agreements on 17.8.1982 at New Delhi for the supply of equipment,

106

--

.. J.

N.T.P.C. v. SINGER CO. 107

erection and commissioning of certain works in India. It was agreed that A

the law applicable to the contract would be the laws in force in India and

that the Courts of Delhi would have the exclusive jurisdiction. The agree­

ments contained a specific provision that any dispute arising out of the

contract should be decided as

per the relevant clauses of the General

conditions of the contract. According to the General Terms, the

Respon­

dent being a foreign contractor it would be governed by the provisions

relating to foreign contractors.

It further provided for settlement of

dis­

putes amicably, failing which by arbitration which would be conducted by

three arbitrators one each to be nominated

by the owner and the

C~mtrac-

B

tor and a third to be named by the President of the International Chamber

of Commerce (l.C.C.).

A dispute arose between the parties and it

was referred to the

Arbitral Tribunal constituted in terms of rules of arbitration

of the ICC

Court,s~Rule~_~nd London was chosen by the ICC Court as the place of

arbitration. The Tribunal made

an interim award.

The appellant corporation filed an

appli~ation under the provisions

of the Arbitration Act, 1940 before the Delhi High Court for setting aside

the said interim award. -

c

D

The High Court held that the award was not governed by the Ar· E

bitration Act, 1940; the arbitration agreement on which the award was

made was not governed

by the law of India; the award fell within the ambit

of the Foreign Awards (Recognition

and Enforcement) Act, 1961; London

being the seat of arbitration, English Courts alone had jurisdiction to set

aside the award; and,

that it had no jurisdiction to entertain the applica-

tion filed under the Arbitration Act,

1940. F

Being aggrieved against the High Court's order, the appellant cor­

poration preferred the present appeal by special leave.

On behalf of the appellant, it was contended that the substantive law G

which governed the arbitration was Indian law and so the competent courts

were Indian Courts.

It was also contended that even in respect of

proce­

dural matters, the concurrent jurisdiction of the courts .of the place of

arbitration did not exclude the jurisdiction of Indian Courts.

It was contended on behalf of the respondent company that while the H

108 SUPREME COURT REPORTS . [1992] 3 S.C.R.

A main contract was governed by Indian law, as expressly stated by the 1

parties, arbitration being a collateral contract and procedural in nature,

B

c

it was not necessarily bound by the proper law of the contract, but the law

applicable to it

must

be determined with reference to other factors and the

place

of arbitration was an

im:-ortant factor. It was further contended that

since London was chosen to be the seat of arbitrartion, English law was

the

proper law of arbitration, and all proceedings connected with it would

be governed

by that law and exclusively within the jurisdiction of the

English courts;

and that the Indian courts had no jurisdiction in matters

connected with the

arbitration, except to the extent permitted by the

Foreign Awards Act for

recogni~ion and enforcement or. the award.

On the question as to which was the law that governed the agreement

on which the award

had been made :

Allowing the appeal,

this Court,

D HELD : 1. The High Court was wrong in treating the award in

E

F

question as a foreign award. The Foreign Awards Act has no application

to the award

by reason of the specific exclusion contained in

Section 9 of

that Act. The award is governed by the laws in force in India, including the

Arbitration Act, 1940. [132-C]

2. The expression

'proper law of a contract' refers to the legal system

by which the parties to the contract intended their contract to be governed.

If their intention is expressly stated or if it can be clearly

inferred from

the contract itself

or its surrounding circumstances, such intention deter-

mines the

proper law of the contract. The only limitation on this rule is

that the intention of the parties must

™: expressed bona fide and and it .

should not be opposed to public policy. Where, however, the intention of

the partfos in not expressly stated and no inference about it can be drawn,

their intention as such has no relevance. In that event, the courts en­

deavour to impute an intention by identifying the legal system with which

G the transaction has its closest and most real connection. [118-B, E, F]

Hamlyn & Co. v. Taliskar Distillery, (1891-4) All E.R. 849; Vita Food

Products Inc. v. Unus Shipping Co. Ltd., (1939) AC 27'7 (PC), relied on.

Dicey

& Morries:

The Conflict of Laws, 11th Edo. Vol. II PP.1161-62,

1-1 referred to.

\--

--+--

_J

N.T.P.C. v. SINGER CO. 109

3. Mere selection of a particular place for submission to the jurisdic- A

tion of the courts or for the conduct of arbitration will not, ie the absence of

any other relevant connecting factor with that place,

be sufficient to draw an

inference as to the intention of the parties to

be governed by the system of law

prevalent in

that place. This is specially so in the case of arbitration. This is

particularly true when the place of arbitration is not chosen

by the parties

themselves, but

by the arbitrators or by an outside body, and that too for

reasons unconnected with the contract. Choice of place for submission to

jurisdiction

of courts or for arbitration may thus prove to have little

relevance for drawing an inference

as to the governing law of the contract,

unless supported in that respect

by the rest of the contract and

the surround-

B

ing circumstances. Any such clause must necessarily give way to stronger c

indications in regard to the intention of the parties. [119 C-G]

Jacobs Marcus & Co. v. The Credit Lyonn.ais, [1884) 12 Q.B.D. 589

(C.A.); The Fehmam, (1958) 1 All E.R. 333, relied on.

4. Where the parties have not expressly or impliedly selected the D

proper law, the courts impute an intention by applying the objective test to

determine what the parties would have as

just and reasonable persons . intended as regards the applicable law had they applied their minds to the

question. The Judge has to determine the proper law for the parties in such

circumstances

by putting himself in the place of a "reasonable man". For this

purpose the place where the contract was made, the form

and object of the

contract, the place of performance, the place of residence

or business of the

parties, reference to the courts having jurisdiction

and such other links are

examined by the courts to determine the system of law with which the

transaction has its closest

and most real connection. The expression 'proper

law' refers to the substantive principles of the domestic law of the chosen

system

and not to its conflict oflaws or rules. [120 A-C; 121 A-BJ

The Assunzione, (1954)

P.150, (C.A.); Mount Albert Borough Council

v.Australasian Temperance (lnd General Mutual Life Assurance Society Ltd.,

E

F

(1938) A.C. 224, (P.C.), relied on. G

Dicey & Morris: The Conflict of Laws, 11th Edn., Vol. I pp.534-535;

Vol. II p.1164, referred to.

5. Where, there is no express choice of the law governing the contract

as a whole, or the arbitration agreement as such, a presumption may arise H

110 SUPREME COURT REPORTS [1992] 3 S.C.R.

A that the law of the country where the arbitration is agreed to be held is the

B

c

D

E

proper law of the arbitration agreement. But that is only a rebuttable ~·

presumpton. [121 G-H]

Whitworth Street Estates (Manchester) Ltd. v. James Miller & Partners

Ltd., 1970 AC 583, referred to.

Dicey

& Morris: The Conflict of Laws, 11th Edn. Vol.I p.539, referred

to.

6. The validity, effect

and interpretation of the arbitration agreement

are governed by its proper law.

Such law will decide whether the arbitra­

tion clause is wide enough to cover the dispute between the parties. Such

law will also ordinarily decide whether the arbitration clause binds the

parties even when one of them alleges that the contract is void, or voidable

or illegal or that such contract has been discharged by breach or frustra-

. tion. [122-B]

Heyman & Anr. v. Darwins Ltd., 1942 (1) All E.R. 337, referred to.

7. The parties have the freedom to choose the law governing an

international commercial arbitration agreement. They may choose the

substantive law governing the arbitration agreement as well as the proce­

dural law governing the conduct of the arbitration. Where the proper law

of the contract is expressly chosen by the parties, as in the present case,

such law must, in the absence of

an unmistakable intention to the contrary,

govern the

arbitration agreement. [122 D-E]

F 8. The proper law of the contract in the present case being expressly

G

stipulated to be the

laws in force in India and the exclusive jurisdiction of the

courts in Delhi in all matters arising under the contract having been

specifically accepted,

and the parties not having chosen expressly or by

implication a law different from the Indian law in regard to the agreement

contained in the

arbitration clause, the proper law governing the arbitration

agreement is indeed the law in force in India, and the competent courts of this

country

must necessarily have jurisdiction over all matters concerning

arbitration. Neither the rules of procedure for the conduct of arbitration

contractually chosen by the parties viz., the

l.C.C. Rules nor the mandatory ..J-._

requirements of the procedure followed in the courts of the country in which

H the arbitration is held can in any manner supersede the overridingjurisdic-

-

N.T.P.C. v. SINGER CO. 111

tion and control o(the Indian law and the Indian courts. [123 F-H; 124-A] A

Bank Mel/at v.Helliniki Techniki SA, (1983) 3 All E.R. 428, referred to.

International Chamber of Commerce Arbitration, 2nd Ed. (1990); Com­

mercial Arbitration, 2nd Ed.; Allen Redfern and Martin Hunter, Law &

Practice of International Commercial Arbitration, 1986; Russel on Arbitration B

20th Ed. (1982); Cheshire & North's Pdvate International Law, 11th Ed.

(1987), referred to.

9. The procedural powers and duties of the arbitrators, are matters

regulated in accordance with the rules chosen

by the parties to the extent that

those rules are applicable

and sufficient and are not repugnant to the C

requirements of the procedural

law and practice of the seat of arbitration.

The concept of party 1mtonomy in international contracts is respected by all

systems of law so far as it is not incompatible with the proper law of the

contract

or the mandatory procedural rules of the place where the arbitra-

tion is agreed to be conducted

or any overriding public policy. (124 B-D] D

10. An award rendered in the territory of a foreign State may be

regarded as a domestic award in India where it is sought to be enforced by

reason of Indian law being the proper law governing the arbitration agree­

ment in terms of which the award was made. The Foreign Awards Act,

incorporating the

New

York Convention, leaves no room for doubt on the E

point. [125-E]

ICC Rules of Arbitration, 1988; Craig, Park and Pauls son : International

Chamber of Commerce Arbitrartion, 2nd Ed. (1990), referred to.

11. The difference between an ad hoc arbitration and an institutional F

arbitration, is rwt a difference between one system of law and another; for

whichever is the proper

law

which governs either proceeding, it is merely a

ditTernce in the method of appointment and conduct of arbitration. Either

method is applicable to an international arbitration,

but neither is

deter­

minative of the character of the resultant award, namely, whether or not it is G

a Foreign Award as defined under the Foreign Awards Act, 1961.

[125-H;

126 A-8]

12. An arbitration agreement may be regarded as a collateral or

ancillary contract in the sense

that it survives to determine the claims of the

parties

and the mode of settlement of their disputes even after the breach or H

112 SUPREME COURT REPORTS (1992] 3 S.C.R.

A repudiation of the main contract. But it is not an independent contract, and

it has no meaningful existence except in relation to the rights and liabilities

of the parties under the main contract. It is a procedural machinery which is

activated when disputes arise between parties regarding their rights

and

liabilities.

The law governing such rights and liabilities is the proper law of

B

the contract, and unless otherwise provided, such law governs the whole

contract including the arbitration agreement, and particularly so when the

latter is contained not in a separate agreement, but, as in the present case, in

one of the clauses of the main contract. (129

A-CJ

Heyman & Anr. v. Darwins Ltd., 1942 (1) All E.R. 337, Bremer Vulkan

C Schiffbau Und Maschinenfabrik v. South India Shipping Corpn., 1981 (1) All

E.R. 289, relied

en.

Mustil & Boyd: Commercial Arbitration, 2nd Ed. (1989), referred to.

13. In a proceeding such as the present which is intended to be

D controlled by a set of contractual rules which are self-sufficient and

designed to cover every step of the proceeding, the need to have recourse

to the municipal system of

law and the courts of the place of arbitration

is reduced to the minimum

and the courts of that place are unlikely to

interfere with the arbitral proceedings except in cases which shock the

judicial conscience.

(130 C-E]

-

E

Bank Me/lat v.Helliniki Techniki SA, (1983) 3 All E.R. 428, referred to.

14.

If the parties had agreed that the proper law of the contract

should be the

law in force in India, but had also provided for arbitration

F in a foreign country, the laws of India would undoubtedly govern the

validity, interpretation and effect of all clauses including the ·arbitration

clause in the contract as well as the scope of the arbitrators' jurisdiction.

It is Indian law which governs the contract, including the arbitration

clause, although in certain respects regarding the conduct of the

arbitra­

tion proceedings the foreign procedural law and the competent courts of

G that country may have a certain measure of control. (130 F-G]

International Tank and

Pipe SAK v. Ku.wait Aviation Fueling Co. KSC,

(1975) 1 All E.R. 242, relied on.

15. The choice of the place of arbitration was, as far as the parties

H are concerned, merely accidental in so for as they had not expressed any

N.T.P.C. v. SINGER CO. [TIIOMMEN, J.) 113

intention in regard to it and the choice was made by the ICC Court for A

J_ reasons totally unconnected with either party to the contract. On the other

hand,

apart from the expressly stated intention of the parties, the contract

itself, including the arbitration agreement contained in one

of its clauses,

is redolent

of India and matters Indian. The disputes between the parties

under the contract

ha".e no connection with anything English, and they

B

have the closest connection with Indian laws, rules and regulations. Any

attempt to exclude the jurisdiction of the competent courts and the laws

in force in India is totally inconsistent with the agreement between the

parties.

(131 A, B, C]

16. All substantive rights arising under the agreement including that

which is contained in the arbitration clause are governed by the laws of

c

India. In respect of the actual conduct of arbitration, the procedural law

of England may be applicable to the extent

that the ICC Rules are insuf-

ficient

or repugnant to public policy or other mandatory provisions of the

~~ laws in force in England. Nevertheless, the jurisdiction exercisable by the

English courts

and tbe applicability of the laws of that country in proce-

D

dural matters must be viewed as concurrent and consistent with the

jurisdiction

of the competent Indian courts and the operation of Indian

laws in all matters concerning arbitration in so for as the main contract

as

well as that which is contained in the arbitration clause are governed

by the laws of India. (131 -H; 132 -A,B] E

~

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1978 of

1992.

-

From the Judgment and Order dated 12.2.1991 of the Delhi High

Court

in

FAO (OS) No. 102 of 1990. F

Shanti Bhushan,. Dr. A.M. Singhvi, C. Mukhopadhaya, J.C. Seth, O.P.

Mittal, Sudarsh Menon and G.G. Malhotra for the Appellant.

S.K. Dholakia, O.P.Sharma, D.C.Singhania, Ms. Nanita Sharma, Hari

Menon, P. Piwany and R.K. Gupta for the Respondents. G

The Judgment of the Court was delivered by

THOMMEN,

J. Leave granted.

The National Thermal

Power Corporation (the 'NTPC') appeals H

114 SUPREME COURT REPORTS [1992) 3 S.C.R.

A from the judgment of the Delhi High Court in FAO (OS) No.102/90

dismissing the NTPC's application filed under sections 14, 30 and 33 of the

Arbitration Act, 1940 (No. X of 1940) to set aside an interim award made

at London by a tribunal constituted by the International Court of Arbitra­

tion of the International Chamber of Commerce (the "ICC Court") in terms

B

c

of the contract made at New Delhi between the NTPC and the respondent

. the Singer Company (the 'Singer') for the supply of equipment, erection

and commissioning of certain works

in India. The High Court held that the

award

was not governed by the Arbitration Act,

1940; the arbitration

agreement on which the award

was made was not governed by the law of

India; the award fell within the ambit of the Foreign Awards (Recognition

and Enforcement)

Act, 1961 (Act 45 of 1961) (the 'Foreign Awards Act');

London being the seat of arbitration, English Courts alone had jurisdiction

to set aside the award; and, the Delhi High Court had

no jurisdiction to

entertain the application filed under the Arbitration Act,

1940.

The NTPC and the Singer entered into two formal agreements dated

D 17:8.1982 at New Delhi. The General Terms and Conditions of Contract

dated

14.2.81 (the 'General Terms') are expressly incorporated in the

agreements and they state :

· "the laws applicable to this Contract shall be the laws in force

E in India. The Courts of Delhi shall have exclusive jurisdition in

all matters arising under this Contract." (7.2).

The General Terms deal

with the special responsibilities of foreign

contractors and Indian contractors. The

Singer, being a foreign contractor,

is governed by the provisions relating to the foreign contractors. The

F General Terms further provide for settlement of disputes by amicable

settlement, failing which by arbitration.

Sub-clause 6 of clause

27 of the General Terms deals with arbitration

in relation to an Indian contractor and sub-clause 7 of the said clause deals

G with arbitration in respect of a foreign contractor. The latter provision says:

H

"27.7. In the event of foreign Contractor, the arbitration shall

be conducted

by three arbitrators, one each to be nominated

by the

Owner and the Contractor and the third to be named

by the President of the International Chamber of Commerce,

Paris. Save as above all Rules of Concilliation and Arbitration

N.T.P.C. v. SINGER CO. [TIIOMMEN, J.] 115

of the International Chamber of Commerce shall apply to such A

*

arbitrations. The arbitration shall be conducted at such places

as the arbitrators may determine."

In respect of an Indian Contractor, sub-clause 6.2 of clause

27 says

that the arbitration shall be conducted at New Delhi in accordance with

the provisions of the Arbitration Act,

1940. It reads : B

"27.6.2. The arbitration shall be conducted in accordance with

·:

the provisions of the Indian Arbitration Act, 1940 or any

statutory modification thereof. The venue of arbitration shall

be

New Delhi, India."

c

The General Terms further provide :

"the Contract shall

in all respects be construed and governed

;>!.

according to Indian laws." (32.3).

The formal agreements which the parties executed on

17.8.82 contain

D

a specific provision for settlement of disputes. Article 4.1 provides :

"4.1. Settlement of Disputes : It is specifically agreed by and

between the parties that all the differences or disputes arising

out of the contract or touching the subject matter of the

E

~- contract, shall be decided by process of settlement and arbitra-

tion

as specified in clause

26.0 and 27.0 excluding 27.6.1 and

27.6.2., of the General Conditions of the Contract."

Being a foreign contractor, the provisions of sub-clause 6 of clause

27 of the General Terms are not applicable to the Singer, but the other F

provisions of clause 27 govern the present contract. Accordingly, the

_A

dispute which arose between the parties was referred to an Arbitral

Tribunal constituted

in terms of the rules of arbitration of the ICC Court

(the 'ICC Rules').

In accordance with Article 12 of those Rules, the ICC

Court chose London to be the place of arbitration.

G

It is significant that the parties have expressly stated that the law

__,....,_

which governs the": contract, i.e., the proper law of the contract is the law

in force in India and the courts of Delhi have exclusive jurisdiction in all

matters arising under the contract. One of the clauses of the Contract deals

with arbitration (Clause

27 of the General Terms). H

..,

A

B

c

D

E

F

116 SUPREME COURT REPORTS (1992] 3 S.C.R.

The point for consideration is whether the High Court was right in

rejecting the appellant's application filed under the provisions of the

Arbitration Act, 1940 and in holding that the award which was made in

London on an arbitration agreement was not governed by the law of India

and that it

was a foreign award within the meaning of the Foreign Awards

Act and beyond the jurisdiction of the Indian Courts except for the purpose

of recognition and enforcement under the latter Act.

The award

was made in London

as an interim award in an arbitration

between the NTPC and a foreign contractor on a contract governed by

the law of India and made

in 1ndia for its performance solely in India. The

fundamental question

is whether the arbitration agreement contained in

the contract

is governed by the law of India so as to save it from the ambit

of the Foreign Awards Act and attract the provisions of the Arbitration

Act,

1940. Which is the law which governs the agreement on which the

award has been made

?

Mr.

Shanti Bhushan, appearing for the NTPC, sumbits that admit­

tedly the proper law of the contract

is the law in force in India. The

·

arbitration agreement is contained in a clause of that contract. in the

absence of any stipulation to the contrary, the contract has to be seen as a

whole and the parties must

be deemed to have intended that the substan­

tive

l~w applicable to the arbitration agreement is exclusively the Jaw which

governs the main contract, although,

in respect of procedural matters, the

competent courts in England

will also be, concurrently with the Indian

courts, entitled to exercise jurisdiction over the conduct of arbitration. But

occasions for interferance

by the courts in England would indeed be rare

and probably unnecessary

in view of the elaborate provisions contained in

the ICC Rules

by which the parties have agreed to abide. The substantive

law governing arbitration, which concerns questions like capacity, validity,

effect and interpretation of the contract etc.,

is Indian

law and the com­

petent courts

in such matters are the Indian courts. Even in respect of

procedural matters, the concurrent jurisdiction of the courts of the

place

G of arbitration does not exclude the jurisdiction of the Indian· courts.

Mr. S.K. Dholakia appearing for .the Singer, on the other hand,

submits that the arbitration agreement

is a separate and distinct contract,

and collateral to the main contract. Although the main contract

is governed

H by the laws in force in India, as stated in the General Terms, there is no

---

N.T.P.C. v. SINGER CO. [THOMMEN, J.] 117

express statement as regards the law governing the arbitration agreement. A

In the circumstances, the law governing the arbitration agreement is not

the same

law which governs the contract, but it is the law which is in force

in the country in which the arbitration

is being conducted.

Counsel accord­

ingly submits that the Delhi High Court is right in saying that the saving

clause in section 9 of the Foreign Awards Act has no application to the

B

award in question made in London by an Arbitral Tribunal constituted in

.

accordance with the ICC Rules. Counsel submits that the High Court has

rightly held that the impugned award falls under .the

Foreign Awards Act

and it

is not liable to be challenged on the alleged grounds falling under

sections

14,

30 and 33 of the Arbitration Act, 1940.

Counsel says that the award, having been made in London in terms

c

of the ICC Rules to which the parties have submitted, is governed by the

provisions of the

New York Convention, as incorporated in the Foreign

Awards Act, and its enforceability· in India can be resisted only

in the

circumstances postulated under that Act, and the Delhi High Court has

rightly rejected the petition invoking the jurisdiction of that court in terms

D

of t.he Arbitration Act,

1940.

Mr. Dholakia does not dispute that the substantive rights of the

parties under the Contract are governed

by the law of India. His

conten­

tion, however, is that while the main contract is governed by Indian law, as E

expressly stated by the parties, arbitration being a collateral contract and

procedural

in nature, it is not necessarily bound by the proper law of the

contract, but the law applicable to it must be determined

with reference to

other factors. The place of arbitration

is an important factor. London

having been chosen in accordance with the ICC Rules to be the seat

of

arbitration, English law is the proper law of arbitration, and all proceedings F

connected

~th it are governed by that law and exclusively within the

jurisdiction of the English courts. He denies that the Indian courts have

any jurisdiction in matters connected with the arbitration, except to the

extent permitted

by the Foreign Awards Act for recognition and enforce-

ment of the

award. G

Dicey & Morris in The conflict of Laws, 11th edn., Vol. II ('Dicey')

-~...J.. refer to the 'proper law of a contract' thus :

"Rule 180 -The term 'proper law of a contract' means the

system of law by which the parties intended the contract to

be H .

/

A

B

c

D

E

F

G

H

118

SUPREME COURT REPORTS [1992) 3 S.C.R.

governed, or, where their intention is neither expressed nor to

be inferred from the circumstances, the system of law with

which

the transaction has its closest and most real connection."

(pages 1161-62)

The expression 'proper law of a contract' refers to the legal system

by which the parties to the contract intended their contract to be governed.

If their intention in expressly stated or if it can be clearly inferred from the

contract itself or its-surrounding circumstances, such intention determines

the proper law of the contract. In the words of Lord Herchell, L.C. :

" ....... .In this case, as in all such cases, the whole of the contract

must be looked at, and the contract must be regulated by the

intention of the parties as appearing from the contract. It is

perfectly

competent to those who, under such circumstances as

I have

indicated, are entering into a contract, to indicate by the

terms which they employ which system of law they intend to be

applied to the construction of the contract, and to the deter­

mination of the rights arising out of the contract".

Hamlyn & Co. v. Ta/isker Distillery, (1891-4) All E.R. 849 at

852.

Where, however, the intention of the parties is not expressly stated

and no inference about it can be drawn, their intention as such

bas no

relevance. In that event, the courts endeavour to 'impute an intention by

identifying the legal system with which the transaction has its closest and

most real connection.

The expressed intention of the parties is generally decisive in deter­

mining the proper law of the contract.* The only limitation on this rule is

that tlie intention of the parties must '.f>e expressed bona fide and it should

not be opposed to public policy. In the words of Lord Wright :-

" ...... where there is an express statement by the parties of their

intention to select the law of the contract, it is difficult to see

Rule 180 is further elucidated by Dicey in the sub-rules. Sub-rule (1) i:eads :­

"Sub-rule (1) -When the intention of the parties to a contract, as to the law governing

the contract, is expressed

in

"W"Ords, this expressed intention, in general, determines the

proper law of the contract.•

-1--

-

..

N.T.P.C. v. SINGER CO. [THOMMEN, J.] 119

what qualifications are possible, provided the intention ex-A

pressed is bona fide and legal, and provided there is no reason

for avoiding the choice

on the ground of public policy ........

"

Vita Food Products Inc. v. Unus Shipping Co. Ltd., (1939) AC

277, 290 (PC). B

In the absence of an express statement about the governing law, the

inferred intention

of the parties determines that law.* The true intention

of the parties, in the absence of an express selection, has to be discovered

c

by applying

"sound ideas of business, convenience and sense to the lan­

guage of the contract ifself'.

Jacobs Marcus & Co., v.

The Credit Lyonnais,

(1884) 12 Q.B.D. 589, 601 (C.A.). In such a case, selection of courts of a

particular country as having jurisdiction

in matters arising under the con­

tract.

is usually, but not invariably, be an indication of the intention of the

parties that the system of law followed by those courts

is the proper law D

by which they intend their contract to be governed. However, the mere

selection of a particular place for submission to the jurisdiction

of the

courts or for the conduct of arbitration

will not, in the absence of any other

relevant connecting factor with that place, be sufficient lo draw

an in­

ference as to the intention of the parties to be governed

by the system of

law prevalent

in that place. This is specially so in the case of arbitration,

for the selection

of the place of arbitration may have little significance

where it

is chosen, as is often the case, without regard to any relevant or

significant link with the place. This

is particularly true when the place of

arbitration is not chosen by the parties themselves, but by the arbitrators

or by an outside body, and that too for reasons unconnected with the

contract. Choice of place for submission to jurisdiction of courts

or for

arbitration may thus prove to have little relevance for drawing an inference

as to the governing

iaw of the contract, unless supported in that respect by

the rest of the contract and. the surrounding circumstances. Any such

clause must necessarily

give way to stronger indications in regard to the

intention of the parties.

See The Fehmam, (1958) 1 All E.R. 333.

Dicey's sub-rule (2) of rule 180 reads :-

"Sub-rule (2). -When the intention of the parties to a contract with regard to the law

governing the contract

is not expressed in

words, their intention is to be inferred from

the terms and nature

of the contract. and from the general circumstances of the case.

E

F

G

and such inferred intention determines the proper law of the

contract." H

A

B

c

•

120 SUPREME COURT REPORTS (1992) 3 S.C.R.

Where the parties have not expressly or impliedly selected the proper

law,. the courts impute an intention by applying the objective test to

determine what the parties would have

as just and reasonable persons

intended

as regards the applicable law had they applied their minds to the

question.• The judge has to determine the proper

law for the parties in

such circumstances

by putting himself in the place of a "reasonable man".

He has to determine the intention of the parties

by asking himself "how a

just and reasonable person would have regarded the problem",

The Assun­

zione

(1954)

P. 150, 176 (C.A.); Mount Albert Borough Council v.

Australasian Temperance and General Mutual Life Assurance Society Ltd.

(1938) A.C. 224, 240 (P.C.)

For this purpose the place where the contract was made, the form

and object of the contract, the place of performance, the place of residence

or business of the parties, reference to the courts having j~risdiction and

such other links are examined

by the courts to determine the system of law

-~

D with which the transaction has its closest and most real connection.

E

F

G

The position in these respects is summarised by the

Privy Council in

Mount Albert Borough Council v. Australasian Temperance and General

Mutual Life Assurance Society, Limited, (1938) A.C. 224 at 240 :-

"The proper law of the contract means that law which the

English or other Court

is to apply in determining the obligations

under the contract ...... .It may be that the parties have

in terms

in their agreement expressed what law they intend to govern,

and

in that case prim a f acie their intention will be effectuated

by the Court. But in most cases they do not do so. The parties

may not have thought of the matter at all. Then the Court has

to impute an intention, or to determine for the parties what is

the proper law which, as just and reasonable persons, they

ought or would have intended if they had thought about the

question when they made the contract....".

Dicey's sub-rule (3) of rule

180 reads :-

. "Sub-rule (3). -When ·the intention of the parties to a contract with regard to the law

governing it is not expressed and cannot be inferred from the circumstances. the

contract

is governed

by the system of law with which the transaction has its closest and

H most real connection."

-

N.T.P.C. v. SINGER CO. [THOMMEN, J.] 121

Proper law is thus the law which the parties have expressly or A

impliedly chosen, or which is imputed to them by reason of its closest and

most intimate connection with the contract.

It must, however, be clarified

that the expression 'proper law' refers to the substantive principles

of the

domestic law

of the chosen system and not to its conflict of laws rules. The

law of contract

is not affected by the doctrine of renvoi. See Dicey,

Vol.

II, p. 1164.

B

In a case such as the present, there is no need to draw any inference

about the intention of the parties or to impute any intention to them, for

they have clearly and categorically stipulated that their contract, made in

India to

be performed in India, is to be governed by the 'laws in force in C

India' and the courts in Delhi are to 'have exclusive jurisdiction in all

matters arising under this contract' (cl. 7). The cardinal test suggested by

Dicey in rule

180 is thus fully satisfied.

As regards the governing

law of arbitration, Dicey says : "Rule 58. -(1) The validity, effect and interpretation of an

arbitration agreement are governed

by its proper law.

(2) The law governing arbitration proceedings is the law chosen

D

by the parties, or, in the absence of agreement, the law of the E

country in which the arbitration is held." (Vol. I,

Pages 534-

535).'

The principle in rule 58, as formulated by Dicey, has two aspects

(a) the law governing the arbitration agreement, namely, its proper

law;

and (b) the law governing the conduct of the arbitration, namely, its F

procedural law.

The proper law of the arbitration agreement is normally the same as

the proper law of the contract. It is only in exceptional cases that it is not

so even where the proper

law of the contract is expressly chosen by the

parties. Where,

·however, there is no express choice of the law governing G

the contract as a whole, or the arbitration agreement as such, ·a presump-

tion

may arise that the law of the country where the

a~bitration is agreed

to be held

is the proper law of the arbitration agreement. But that is only

a rebutable presumption. See Dicey, Vol

I, p. 539; see the observation in

Whitworth Street Estates (Manchester) Ltd. v. James Miller & Partners Ltd., H

122 SUPREME COURT REPORTS [1992] 3 s.t.R.

A 1970 AC 583, 607, 612 and 616).

The validity, effect and interpretation of the arbitration agreement

are governed

by its proper law. Such law will decide whether the arbitration

clause

is wide enough to cover the dispute between the parties.

Such law

B

will also ordinarily decide whether the arbitration clause binds the parties

even when one of them alleges that the contract is void, or voidable or

· illegal or that such contract has been discharged by breach or frustration.

See Heyman & Anr. v. Darwins, Ltd., 1942 (1) All E.R. 337. The proper

,;._ -

law of arbitration will also decide whether the arbitration clause would

,

equally apply to a different contract between the same partieS' or between

c one of those parties and a third party.

-

The parties have the freedom to. choose the law governing an inter-

national commercial arbitration agreement. They

may choose the substan-

tive law governing the arbitration agreement

as well as the procedural law

-~

D

governing the conduct of the arbitration. Such choice is exercised either

expressly

or by implication. Where there is no express choice of the law

,. governing the contract as a whole, or the arbitration agreement in par-, ,

ticular, there is, in the absence of any contrary indication a presumption

that the parties have intended that the proper

law of the contract as well

as the law.governing the arbitration agreement are the same as the law of

E the country in which the arbitration is agreed to be held.

On the other ~

hand, where the proper law of the contract is expressly chosen by the

parties, as in the present case, such law must, in the absence of an

unmistakable intention to the contrary, govern the arbitration agreement

which, though collateral or ancillary to the main contract,

is nevertheless a

F

part of such contract.

......

Whereas, as stated above, the proper law of arbitration (i.e., the

;....._

substantive law governing arbitration) determines the validity, effect and

interpretation of the arbitration agreement, the arbitration proceedings are

G

conducted, in the absence of any agreement to the contrary, in accordance

with the law of the country in which the arbitration is held.

On the other

hand, if the parties have specifically chosen the

law governing the conduct

and procedure of arbitration, the arbitration proceedings

will be conducted

---

in accordance with that law so long as it is not contrary to the public policy

or the mandatory requirements of the law of the country

in which the

H arbitration is held. If no such choice has been made by the parties,

N.T.P.C., v. SINGER CO. [TIIOMMEN, J.] 123

+- expressly or by necessary implication, the procedural aspect of the conduct A

of arbitration (as distinguished from the substantive agreement to ar-

bitrate)

will be determined by the law of the place or seat of arbitration.

Where, however,

the parties have, as in the instant case, stipulated that the

arbitration between

them will be conducted in accordance with the ICC

Rules, those rules, being in many respects self-contained or

self-regulating

B

and constituting a· contractual code of procedure, will govern the conduct

of the arbitration, except insofar as they conflict with the mandatory

'""

requirements of the proper law of arbitration, or of the procedural law of

the seat of arbitration. See the observation of Kerr, U. in Bank Me/lat v.

Helliniki Techniki SA., (1983) 3 All E.R. 428. See also Craig, Park and

Paulsson, International Chamber of Commerce Arbitration, 2nd· ed. (1990). c

-

To such an extent the appropriate courts of the seat of arbitration, which

in the present case

are the competent English courts, will have jurisdiction

in respect

of procedural matters concerning the conduct of arbitration. But

the overriding principle is that the courts

of the country whose substantive

I.aws govern the arbitration agreement are the competent courts in respect

D

of all matters arising under the arbitration agreement, and the jurisdiction

excercised by the courts

of the seat of arbitration is merely concurrent and

not exclusive and strictly limited to matters of procedure. All other matters

in respect

of the arbitration

agre~ment fall within the exclusive competence

~

of the courts of the country whose laws govern the arbitration agreement.

See Mustil & Boyd, Commercial Arbitration, 2nd ed.; Allen Redfern and E

Martin Hunter, Law & Practice of International Commercial Arbitration,

1986; Russel on Arbitration, Twentieth ed., 1982; Cheshire & North's

Private International Law, eleventh ed. (1987).

The proper law of the contract in the present case being expressly F

~-

stipulated to be the laws in force in India and the exclusive jurisdiction of

the courts in Delhi in all matters arising under the contract having been

specifically accepted,

and the parties not having chosen expressly or by

implication a law different from the Indian law in regard

to the agreement

contained in the arbitration clause, the

proper law governing the arbitration

G

agreement is indeed the law in force in India, and the competent courts of

_J

this country must necessarily have jurisdiction over all matters concerning

arbitration. Neither the rules

of procedure

fo~ the conduct of arbitration

contractually chosen by the parties (the ICC Rules) nor the mandatory

requirements of the procedure followed

in the courts of the country in

-

which the arbitration is held can in any manner supersede the overriding H

124 SUPREME COURT REPORTS (1992] 3 S.C.R.

A jurisdiction and contcol of the Indian law and the Indian courts.

'::t-

This means, questions such as the jurisdiction of the arbitrator to

decide a particular issue or the continuance of an arbitration or the .

frustration of the arbitration agreement, its

validity, effect and interpreta-

B

tion are determined exclusively by the proper law of the arbitration agree-

ment, which, in the present case,

is Indian Law. The procedural powers

and duties of the arbitrators, as for example, whether they must hear oral

evidence, whether the evidence of one party should be recorded necessarily

in the presence of the other party, whether there is a right of cross-ex-

amination of witnesses, the special requirements of notice, the remedies

c available to a party in respect of security for costs or for discovery etc. are

matters regulated in

accordailce with the rules chosen by the parties to the

·-extent that those rules are applicable and sufficient and are not repugnant

to the requirements of the procedural

law and practice of the seat of · arbitration. The concept of party autonomy in international contracts is

~

re~pected by all systems of law· so far as it is not incompatible with the

D

proper law of the contract or the mandatory procedural rules of the place

where the arbitration

is agreed to be conducted or any overriding public

policy.

The arbitration agreement contained in the arbitration

clause in a

E contract is often referred to as a collateral or ancillary contract in relation

to the main contract of which

it forms a part. The repudiation or breach

'*

of the main contract may not put an end to the arbitration clause which

might still

survive for measuring the claims arising out of the breach and

for determining the mode of their settlement.

See Heyman & Anr. v.

F

Darwins, Ltd., (1942) 1 All E.R. 337; Bremer Vulkan Schiffbau Und Mas-

chinenfabrik v. South India Shipping Corpn., (1981) 1 All E.R. 289. See also

Mustil

& Boyd, Commercial Arbitration, 2nd ed. (1989).

~

The arbitration agreement may provide that all disputes which may

G

arise between the parties will be referred to arbitration or it may provide

that a particular dispute between. the parties

will be submitted to the

jurisdiction of

a particular arbitrator. The arbitration clause may identify

the arbitrator or arbitrators and the place of arbitration or it may .leave

such matters to be determined

by recourse to the machinery of an institu-

tional arbitration, such

as

the ICC, or the London Court of International

>---

H Arbitration or the American Arbitration Association or similar institutions.

-

N.T.P.C. v. SINGER CO. [THOMMEN, J.) 125

+

Clause 27 of the General Terms of the Contract shows that it was A

the intention of the parties that disputes with a foreign contractor should

be referred to arbitration in accordance with the ICC Rules; while disputes

with an Indian contractor should be settled

by arbitration in New Delhi on

an ad hoc basis.

The ICC Rules are made specifically applicable in respect of disputes

B

with a foreign contractor because of the special nature of the contract. One

_, of the parties to such a contract being a foreigner, questions of private

international law (or conflict of laws)

may arise

particularly as regards

arbitral proceedings conducted

in a foreign territory. In respect of an

Indian contractor, the transaction

as well as the dispute settlement process c

-

are completely localised in India and in the Indian legal system and there

is no scope for interference by a foreign system of law with the arbitral

proceedings.

~

An international commercial arbitration necessarily involves a foreign

element giving rise to questions

as to the choice of law and the jurisdiction of D

courts.

Unlike in the case of persons belonging to the same legal system,

contractural relationships between persons belonging to different legal

sys-

terns may give rise to various private international law questions such as the

identity of the applicable law and the competent forum. An award rendered

~

in the territory of a foreign State may be regarded as a domestic award in

E

India where it is sought to be enforced by reason of Indian law being the

proper law governing the arbitration agreement in terms of which the award

was made. The Foreign Awards Act, incorporating the New York Conven-

-

tion, leaves no room for doubt on the point.

The ICC

Rules provide for settlement by arbitration of business F

__j__

disputes of an international character. They furnish an institutionalised

procedure of arbitration. These Rules being a self-contained or a self-

~

regulating code, they operate more or less independently of judicial inter-

ference in the conduct of arbitration, except in so far

as they conflict with

the mandatory requirements of the governing system of the proper law or

G

the procedural law of the place of arbitration. Party-autonomy in interna-

tional business is thus the guiding principle of the self-regulating

-~ mechanism envisaged by the ICC Rules, and interference by any Court with

the actual conduct of arbitration

is to a large extent avoided.

The difference between an ad hoc arbitration and an institutional

H

126 SUPREME COURT REPORTS (1992) 3 S.C.R.

A arbitration is not a difference between one system of law and another; for -+

whichever is the proper law which governs either proceeding, it is merely

a difference

in the method of appointment and conduct of arbitration.

Either method

is applicable to an international arbitration, but neither is

determinative of the character of the

mmltant award, namely, whether or

B

not it is a foreign award as defined under the Foreign Awards Act, 1961.

Where the ICC Rules apply, there is generally little need to invoke

)~

the procedural machinery of any legal system in the actual conduct of

arbitration. These Rules provide for the submission of request for arbitra-

c

tion, the appointment of arbitrators, challenge against the appointment,

pleadings, procedure, selection of the place of arbitration, terms of refer-

-ence, time limit for award, cost, finality and enforceability, and similar

matters of procedure (Article

11 of the ICC Rules). The parties are free

· under the ICC Rules to determine the law which the arbitrator shall apply·

to the merits of the dispute. In the absence of any stipulation by the parties

D as to the applicable law, the arbitrators may apply the law designated as

the proper

law by the Rules of Conflict which they deem to be appropriate

(Article

13 of the ICC Rules). These and other provisions contained in the

ICC Rules make them a self-contained and self-regulating system, but

subject to the overriding powers of the appropriate

mitional courts.*

E

"*

A 'foreign award', as defined under the Foreign Awards Act, 1961

means an award made or on after 11.10.1960 on differnces arising between

persons out of legal relationships, whether contractual or not, which are

-

,-

considered to be commercial under the law in force in India. To qualify as

F a foreign award under the Act, the award should have been made in

pursuance of an agreement in writing for arbitration

to be governed by the

~

Ne':" York convention on the Recognition and Enforcement of Foreign

Arbitral Awards,

1958, and not to be governed by the law of India.

f'

Furthermore such an award should have been made outside India in the

G

territory of a foreign State notified by the Government of India as having

made reciprocal provisions for enforcement of the Convention. These are

the conditions which must be satisfied to qualify an award as a 'foreign

award' (S.2 read with S.9). >-

See /CC Rules of Arbitration, 1988; See also Craig, Park and Paulsson, International

H

Chamber of Commerce Arbitration, 2nd ed. (1990).

N.T.P.C. v. SINGER CO. [THOMMEN, J.] 127

,,.

An award is 'foreign' not merely because it is made in the territory A

+ of a foreign State, but because it is made in such a territory on an

arbitration agreement not governed by the law of India.

An award made

on an arbitration agreement governed by the law of India, though rendered

outside India,

is attracted by the saving clause in

S.9 of the Foreign Awards

Act and is, therefore, not treated

in India as a 'foreign award'.

B

A 'foreign award' is (subject to section 7) recognised and enforceable

in India 'as

if it were an award made on a matter referred to arbitration in

'

India' (S.4). Such an award will be ordered to be filed by a competent court

in India which

will pronounce judgment according to the award

(S.6).

c

-

Section 7 of the Foreign Awards ·Act, in consonance with Art. V of

the New York Convention which

is scheduled to the Act, specifies the

conditions under which recognition and enforcement of a foreign award -..,...,

will be refused at the request of a party against whom it is invoked.

D

A foreign award will not be enforced in India if it is proved by the

party against whom it is sought to be enforced that the parties to the

agreement were, under the

law applicable to them, under some incapacity,

or, the agreement

was not valid under the law to which the parties have

subjected it, or,

in the absence of any indication thereon, under the. law of

E

-;;k the place of arbitration; or there was no due compliance with the rules of

fair hearing; or the award exceeded the scope of the submission to arbitra-

tion; or the composition of the arbitral authority or its procedure was not

in accordance with the agreement of the parties, or, failing such agreement,

was not in accordance with the

law of the place of arbitration; or 'the award

has not yet become binding on the parties, or has been set aside

or F

suspended by a competent authority of the country in which, of under the

_i

law of which, that award was made'. The award will not be enforced by a

court

in India if it is satisfied thatthe subject matter of the award is not

capable of settlement

by arbitration under Indian law or the enforcement

of

the award is contraty to the public.policy.

G

The Foreign Awards Act contains a specific provision to exclude its

---4..

operation to what may be reg3:1"ded as 'domestic award' in the sense of the

-

award having been made on an arbitr~tion agreement governed by the law

of India, although the dispute was with a foreigner and the arbitration was

held and the award was made in a foreign State. H

A

B

128 SUPREME COURT REPORTS (1992) 3 S.C.R. ·

Section 9 of this Act says :-

"Nothing in this Act shall

(a) ....................................................... .

(b) apply to any award made on an arbitration agreement

governed by the law of India."

Such an award necessarily

falls under the Arbitration Act,

1940, and

is amenable to the jurisdiction of the Indian Courts and controlled by the

C Indian system of law just as in the case of any other domestic award, except

that. the proceedings held abroad and leading to the award were in certain

respects amenable to be controlled by the public policy and the mandatory

requirements of the law of the place of !llbitration and the competent

courts

of that place.

D

E

F

It is important to recall that in the instant case the parties have

expressly stated that the laws applicable to the contract would be the laws

in force in India and that the courts of Delhi would have exclusive

juris~

diction 'in all matters arising under this contract'. They have further stated

that the 'Contract shall in all respects

be construed and governed according

to Indian laws'. 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 Delhi that the agreement was executed.

The form of the agreement is closely related to the system of law in India.

Various Indian enactments are specifically mentioned in the agreement as

applicable to it in many respects. The contract

is to be performed in India

with the aid of Indian workmen whose conditions

of service are regulated

by Indian

·laws. One of the parties to the contract is a public sector under-

taking. The contract has in every respect the closest and most real connec­

tion 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

G separate agreement. In the absence of any indication to the contrary, the

governing law

of the contract (i.e., in the words of Dicey, the proper law · of the contract) being Indian law, it is that system of law which must

neces5arily govern matters concerning arbitration, although in certain

respects the law of the place

of arbitration may have its relevance in

H regards to

procedural111atters.

+

-

. .(

-.__,.__

-

•

---'-

N.T.P.C. v. SINGER CO. (THOMMEN, J.] 129

It is true that an arbitration agreement may be regarded as a C91-A

lateral or ancillary contract in the sense that it survives to determine the

claims of the parties and the mode of settlement of their disputes even after

the breach

or repudiation of the main contract. But it is not an independent

contract, and it has no meaningful existence except in relation to the

rights

and liabiltities of the parties under the main contract. It is a procedural B

machinery which is activated when disputes arise between parties regarding

their rights and liabilities. The law governing such rights and liabilities

is

the proper law of the contract, and unless otherwise provided, such law

governs the whole contract including the arbitration agreement, and

praticularly so when the latter

is contained not in a separate agreement,

but,

as in the present case, in one of the clauses of the main contract. C

Significantly, London was chosen as the place of arbitration by

reason of Article 12 of the ICC Rules which reads :

"The place of arbitration shall be fixed by the International

Court of Arbitration, unless agreed upon

by the parties." D

The parties had

never expressed their intention to choose London as

the arbitral forum, but,

in the absence of any agreement on the question,

London

was chosen by the ICC Court as the place of arbitration. London

has no significant connection with the contract or the parties except that it

E

is a neutral place and the Chairman of the Arbitral Tribunal is a resident

there, the other

two members being nationals of the

United States and

I_ndia respectively.

The decisions relied on

by counsel for the

Singer do not support his

contention that the mere fact of London being the place of arbitration f

excluded the operation of the Arbitration Act, 1940 and the jurisdiction of

the courts

in India. In James Miller & Partners Ltd. v. Whitworth Street

Estates (Manchester) Ltd.

(1970) AC 583, the parties had not expressly

stated which law

was to govern their contract.

On an analysis of the various

factors, the Ho~se of Lords held that in the absence of any choice of the

law governing arbitration proceedings, those proceedings were to be con-

G

sidered to be governed by the law of the place in which the' arbitration was

held, namely, Scotland because it was that system of law which was most

closely connected with the proceedings. Various

links"Wi.th Scotland, which

was the place of performance of the contract, unmistakably showed that

the arbitral proceedings were to be governed

by the law of Scotland, H

130 SUPREME COURT REPORTS [1992) 3 S.C.R.

A although the majority of the learned Law Lords (Lords Reid and Wilber­

force dissenting on the point) held that, taking into account certian other

factors, the contract was governed

by English law. That case is no authority

for the proposition that, even where the proper law

of the contract is

expressly stated by the parties, and in the absence of any contrary indica-

B

tion, a diff ernt law governed arbitration. The observations contained in that

judgment

do not support the contention urged on behalf of the Singer that

merely because London

wa~ designated to be the place of arbitration, the

law which governed arbitration was different from the law expressly chosen

by the parties as the proper law of the contract.

C It is true that the procedural law of the place of arbitration and the

courts of that place cannot be altogether excluded, particularly in respect

of matters affecting public policy and other mandatory requirements of the

legal system

of that place. But in a proceeding such as the present which

is intended to be controlled by a set of contractual rules which are self-

D sufficient and designed to cover every step of the proceeding, the need to

have recourse to the municipal system of law and the courts of the place

of arbitration is reduced to the minimum and the courts of that place are

unlikely to interfere with the arbitral proceedings except in cases which

shock the judicial conscience. See the observations of Kerr

U in Bank

Mel/at v. Helliniki Techniki SA, (1983) 3 All E.R. 428.

E

Courts would give effect to the choice of a procedural law other than

the proper law of the contract only where the parties had agreed that

matters of procedure should be governed by a different system of law.

If

the parties had agreed that the proper law of the contract should be the

F law in force in India, but had also provided for arbitration in a foreign

country, the laws of India would undoubtedly govern the validity, inter­

pretation and effect of all clauses including the arbitration clause in the

contract as well as the scope of the arbitrators' jurisdiction.

It is Indian law

which governs the contract, including the arbitration clause, although in

certain respect regarding the conduct of the arbitration proceedings the

G foreign procedural law and the competent courts of that country may have

a certian measure of control.

Sec the principle stated by Lord Denning,

M.R. in l11tematio11a/ Tank and Pipe SAK v. Kuwait A'•iatio11 Fueling Co.

KSC, (1975) 1 All E.R. 242.

H The arbitration clause must he considered together with the rest of

..

-

+

N.T.P.C. v. SINGER CO. [THOMMEN, J.) 131

the contract and the relevant surrounding circumstances. In the present A

case, as seen above, the choice of the place of arbitration was, as far as the

parties are concerned, merely accidental in so far as they had not exptessed

any intention in regard to

it and the choice was made by the ICC Court

for reasons totally unconnected with either party to the contract.

On the

'--

other hand, apart from the expressly stated intention of the parties, the

contract itself, including the arbitration agreement contained in one of its

clauses,

is redolent of India and matters Indian. The disputes between the

parties under the contract have no connection with anything English, and

they have the closest connection with Indian

laws, rules and regulations. In

the circumtances, the mere fact that the venue chosen

by the ICC Court

for the conduct of arbitration

is London does not support the case of the

Singer on the point. Any attempt to exclude the jurisdiction of the com­

petent courts and the laws in force

in india is totally inconsistent with the

agreement between the parties.

B

c

In sum, it may be stated that the law expressly chosen by the parties D

in respect of all matters arising under their contract, which must necessarily

include the agreement contained

in the arbitration clause,

':ieing Indian law

and the exclusive jurisdiction of the courts

in Delhi having been expressly

recognised

by the

parries to the contract in all matters arising under it, and

the contract being most intimately associated with India, the proper law of

arbitration and the competent courts are both exclusively Indian, while

E

·

matters of procedure connected with the conduct of arbitration are left to .

be regulated by the contractually chosen rules of the ICC to the extent that

such rules are not in conflict with the public policy and the mandatory

requirements of the proper

law and of the law of the place of arbitration.

The Foreign Awards Act,

1961 has no application to the award in question F

which has been made on an arbitration agreement governed by the law of

India.

The Tribunal has rightly held that the 'substantive

law of the contract

is Indian law'. The Tribunal has further held 'the laws of England govern

procedural matters

in the arbitration'. G

All substantive rights arising under the agreement including that

which

is contained in the arbitration clause are, in our view, governed by

the laws of India. In respect of the actual conduct of arbitration,

the

procedural law of England may be applicable to the extent that the ICC H

132 SUPREME COURT REPO.RTS (1992) 3 S.C.R.

A Rules are insufficient or repugnant to the public policy or other mandatory

provisions

of the laws in force in England. Nevertheless, the jurisdiction

·

exercisable by the English courts and the applicability of the laws of that

country

in procedural matters must be viewed as concurrent and consistent

·

with the jurisdiction of the competent Indian courts and the operation of

B

Indian laws in all matters concerning arbitration in so far as the main

contract as well as that which

is contained in the arbitration clause are

governed

by the laws of India.

The Delhi High Court was wrong

in treating the award in question

as a foreign award.

ThP, Foreign Awards Act has no application to the

C award by reason of the specific exclusion contain¢d in Section 9 of that

Act. The award

is governed by the laws in force in India, including the

Arbitration Act,

1940. Accordingly, we set aside the impugned judgment

of the Delhi High Court and direct that Court to consider the appellant's

application on the merits in regard to which.

we express no views what­so~ver. The appeal is allowed in the above terms. We do not, however,

D make any order as to costs.

G.N. Appeal allowed.

+

)-. -.

-