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CASE NO.:

Appeal (civil) 1309 of 2001

PETITIONER:

SANSHIN CHEMICALS INDUSTRY

RESPONDENT:

ORIENTALS CARBONS AND CHEMICALS LTD. AND ORS.

DATE OF JUDGMENT: 16/02/2001

BENCH:

G.B. PATTANAIK & K.G. BALAKRISHNAN & B.N. AGRAWAL

JUDGMENT:

JUDGMENT

2001 (1) SCR 1101

The Judgment of the Court was delivered by PATTANAIK, J. Leave granted.

This appeal by grant of special leave is directed against the judgment of

Delhi High Court dated 8th of August, 2000, The question for consideration

is whether a decision regarding the venue of the Arbitration proceedings

could be assailed in appeal under Section 34 of the Arbitration and

Conciliation Act, 1996. The Division Bench of the High Court by the

impugned judgment agreed with the conclusion of the learned Single Judge

and came to hold on examining the arbitration clause in the agreement that

the decision with regard to the venue of the arbitration sitting cannot be

held to be an interim award and as such Section 34 of the Act cannot be

invoked.

The appellant and respondent No. 1 entered into a technical collaboration

agreement called 'Insoluble Sulphur Technical Collaboration Agreement' on

1st of August, 1989. Under the agreement, respondent No. 1 was required to

provide technical information for production of insoluble sulphur in India.

Appellant discharged its obligation under the agreement. The said

respondent No. 1 in May, 1996, wrote a letter to the Indian Council of

Arbitration, making a claim against the appellant on the basis of certain

disputes between the parties. But the Indian Council of Arbitration

returned the papers to respondent No. 1 on 15.5.96. On the very same day,

the said respondent No. 1 filed a statement of claim before respondent No.

2, which was registered as Arbitration Case No. FTA/137. Said respondent

No. 2, by its letter dated 25th of June, 1996 called upon the appellant to

appoint aft arbitrator. On 9.7.96, the appellant wrote to the respondent

No. 2 bringing to its attention clause 8.4 of the agreement and stated that

the appellant has not received any demand for arbitration from OCCL and as

such the respondent No. 2 has no jurisdiction in the matter. Respondent No.

2 however by its order dated 17th of July, 1996, called upon the appellant

to Submit the agreement regarding the venue of arbitration with reasons

within 30 days. Appellant immediately answered the aforesaid letter of the

respondent No. 2 by letter dated 22.7.96, questioning the jurisdiction of

the respondent No. 2 and also seeking clarification as to whether FICCI had

accepted the statement of claim of respondent No. 1. At this point of time,

the appellant was assured that respondent No. 2 will not proceed with the

matter till the issues regarding the venue are sorted out. On 9.8.1996,

respondent No. 1's lawyer intimated respondent no. 2 that they had already

appointed an arbitrator and it was for the arbitral tribunal to decide the

venue under Section 20 of the Arbitration and Conciliation Act, 1996.

Respondent No. 2 was called upon to nominate the appellant's arbitrator.

Appellant by his letter dated 9th of August, 1996, intimated the respondent

No. 2 that the requirement of Article 8.4 not having been complied with,

there is no question of nominating arbitrator on behalf of the appellant.

Appellant also wrote a letter to the respondent No. 1 on 6th of September,

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1996, indicating therein that the Registrar of FICCI had no jurisdiction

and that there had been no proper demand for arbitration. It was also

stated that in any event, Japan was the designated place of arbitration. On

16th of October, 1996, respondent No. 2 sent a communication to the

Manager, Arbitration Department, Japan Commercial Arbitration Association,

stating therein that since parties had not been able to agree on the place

of arbitration within 30 days of the notice calling upon them to submit the

agreement, the JCAA may nominate a member on the Joint Arbitration

Committee. In that letter it had been stated that respondent No, 2 had

already nominated one Umesh Kumar Khaitan as its Member on the Joint

Arbitration Committee. Pursuant to the aforesaid letter from respondent No.

2, the JCAA appointed respondent No. 5 as its Member by letter dated 25th

of October, 1996. Appellant had made some correspondence and queries

regarding the proceedings of the joint Arbitration \007Committee. Mr. Umesh

Khaitan resigned as Member of JAC on 12th of January, 1998 and he was,

therefore, substituted by respondent No. 3. The aforesaid JAC met in Delhi

on 15th of July, 1998 and decided the venue for the sittings of the

arbitral tribunal The appellant filed an application before a learned

Single Judge of Delhi High Court, assailing the decision of the Joint

Arbitration Committee dated 15th July, 1998 on various grounds under

Section 34 of the Arbitration and Conciliation Act, 1996. The learned

Single Judge by his Judgment dated 7th of April, 2000, dismissed the said

application of the appellant on a finding that the impugned decision of the

Joint Arbitration Committee dated 15th of July, 1998 is not an award and as

such is not amenable to appeal under Section 34 of the Arbitration and

Conciliation Act, 1996. Against the said judgment of the learned Single

Judge, the appellant preferred an appeal and the Division Bench having

dismissed the appeal by its Judgment dated 8th of August, 2000, the present

appeals has been preferred to this Court.

Mr. Ashok H. Desai, the learned senior counsel, appearing for the appellant

contended that on a plain reading of clause 8.4 of the Technical

Collaboration Agreement, would indicate that there is no agreed venue where

the arbitral proceedings could be conducted and on the other hand, the

procedure in the arbitral proceedings would be governed by the decision of

the venue inasmuch as if it is to be held in India, then it shall be

conducted in accordance with the rules applicable in India and if it is to

be conducted in Japan, then the rules of Japan Commercial Arbitration

Association would apply. According to Mr. Desai, since the procedure and

the rules to be applicable for resolving the dispute would depend upon the

very decision of the venue, Such a decision amounts to a vital right of the

party being decided by the Joint Arbitration Committee and as such the same

partakes the character of an interim award and consequently Section 34 of

the Arbitration and Conciliation Act, 1996 would apply to such a decision

and aggrieved party against such decision cannot be held to be remedy-less.

Mr. Desai further urged that on an analysis of the agreement, itself would

indicate that it contains two arbitration clauses, one nomenclatured as

Joint Arbitration Committee and the other is the Arbitral Tribunal. While

the former decides the dispute in relation to the venue, the latter decides

the dispute on merits of the claim. Under such circumstances to hold that

the decision of the Joint Arbitration Committee on the dispute relating to

the venue even does not amount to an interim award, is un-sustainable in

law and the learned Single judge as well as the Division Bench committed

serious error in recording a finding that the said decision does not amount

to an award. Mr. Desai also urged that in case of an International

Commercial Arbitration, the seat of the arbitral proceeding is of paramount

importance and the parties to the agreement being conscious of the same,

provided such an elaborate mechanism for resolution of a dispute in the

event no agreement is arrived at on the question of venue. Adjudged from

this stand point, the impugned judgment illegally excludes such a decision

from the purview of a judicial review by way of filing an appeal under

Section 34 of the Act and the same must be interfered with. Mr. Desai also

urged that in view of the definition of "Award" in the Act in Section 2(c)

which includes an interim award, and an award being a final determination

of a particular issue or claim in the arbitration and the issue regarding

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venue being of seminal importance for adjudication of the rights of the:

parties, the conclusion is irresistible that such decision by the Joint

Committee of Arbitrators, must be held to be an interim award and as such

amenable to be reviewed under Section 34 of the Act and consequently, the

High Court committed Serious error in holding to the contrary.

Mr. D.A. Dave, the learned senior counsel, appearing for the respondents on

the other hand submitted that though the expression 'award' has been

defined to include an interim award under Section 2(c) of the Act, but a

decision to become an award must be a final determination of a particular

issue or claim in the arbitration. The decision on the question of venue by

a forum under the agreement termed as Joint Arbitration Committee is at an

earlier stage of initiation of the proceedings of the arbitral tribunal

and, therefore, the same cannot be termed as an interim award, The High

Court, therefore, was justified in not entertaining an appeal against the

same under Section 34 of the Act. With regard to the different clauses of

the agreement, Mr. Dave contends that the parties themselves agreed that

the place of arbitration shall be determined by the Joint Arbitration

Committee and such determination shall be binding and final, whereas the

arbitration clause stipulates that any claim or dispute arising out of or

relating to the agreement shall be settled by arbitration. The very fact

that the parties agreed that the question of venue will be determined by a

Joint Arbitration Committee in the event parties do not designate the place

of arbitration or are unable to agree within 30 days of the demand,

indicates that the parties never intended the said decision to partake the

character of an award to be assailed in appeal and on the other hand the

agreement not having authorised the arbitral tribunal to determine the

place of arbitration, clearly establishes that such a determination by a

separate forum is not an award and, therefore, is not appealable under

Section 34 of the Arbitration and Conciliation Act. Mr. Dave

also contended that the argument advanced on behalf of the appellant that

the decision with regard to the venue of the arbitral proceeding is an

adjudication of a vital right of the parties inasmuch as the procedure to

be adopted in the arbitral proceedings would be the law which governs the

venue of the proceedings, is devoid of any force in view of Clause 9(1) of

the agreement which categorically indicates that the agreement shall be

interpreted in accordance with and governed by the laws of India. According

to Mr. Dave, this provision in the arbitration agreement is conclusive of

the fact as to which law will govern and consequently, the decision of the

Joint Arbitration Committee with regard to the venue looses its

significance. It is next contended by the learned senior counsel for the

respondents that the arbitration clause providing resolution of any dispute

or claim arising out of the agreement by arbitration can obviously relate

to a claim or dispute in relation to the contract and a decision or

determination by the Joint Arbitration Committee on the question of venue,

which power the Committee gets under the agreement itself, cannot be held

to be a decision in course of the arbitral proceedings nor can it be said

to be an adjudication of claim arising put of the agreement and, therefore,

is not an award. Mr. Dave also after referring to the different

provisions in the Arbitration and Conciliation Act contended that making of

an arbitral award and termination of proceedings occurs in Chapter VI and

starts from Section 28, whereas place of arbitration occurs in Chapter V

dealing with the conduct of arbitral proceedings. The commencement of

arbitral proceedings contemplated under Section 21 is the date when a

particular dispute is referred to the arbitration. In this view of the

matter a decision on the question of venue will not be an award or interim

award against which a party can take recourse to a Court under Section 34

and as such the impugned judgment of the learned Single Judge as well as

the Division Bench remain unassailable.

Before we examine the rival submissions made, it would be appropriate for

us to notice the relevant clauses of the agreement, which ultimately would

help us to decide the question as to whether the decisions of the Joint

Arbitration Committee dated 15.7.1998 can be held to be an interim award.

Clause 8.4 is in fact the most crucial clause that requires consideration,

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which is quoted herein-below in extenso.

''Clause 8.4.-Any dispute or claim arising out of or relating to this

Agreement shall be settled by arbitration. If the arbitration is to be held

in India, the dispute shall be submitted to the Arbitration Tribunal of the

Federation of Indian Chambers of Commerce and Industry and shall be

conducted in accordance with the Rules of that Tribunal. If the arbitration

is to be held in Japan, it shall be conducted in accordance with the Rules

of the Japan Commercial Arbitration Association.

In the event that the parties have not designated the place of arbitration

or are unable to agree thereon within thirty (30) days after the demand for

arbitration has been made, the place of arbitration shall be determined by

a Joint Arbitration Committee of three members, one to be appointed by the

Arbitration sub-committee of the Federation, another by the Japan

Commercial Arbitration Association and the third of a nationality other

than that of any one of the parties to act as Chairman to be chosen by the

other two members. In deciding the place of arbitration, the Joint

Arbitration Committee shall consider among others the principle that, if

only the quality of the good is in dispute and/or inspection of the goods

is necessary, arbitration of such case shall take place at the place where

the merchandise is located. The party demanding arbitration according as it

is resident in India or Japan shall give notice to the Arbitration Tribunal

of the Federation or the Japan Commercial Arbitration association, as the

case may be. The Arbitration Tribunal of the Federation or the Japan

Commercial Arbitration Association, as the case may be, shall request both

the parties to submit their agreement and reasons within thirty (30) days

for preference regarding the place of arbitration. The determination of the

place by the Joint Arbitration Committee shall be final and binding."

Clause 9.1 stipulates that the agreement shall be interpreted in accordance

with and governed by the laws of India. Clause 9.7 is extracted herein-

below in extenso:

"9.7. The terms and conditions herein contained constitute the entire

agreement between the parties and shall supersede all previous

communication, either oral or written, between the parties with respect to

the subject matter hereof, and no agreement or understanding varying or

extending the same shall be binding upon either party unless in writing

signed by a duly authorised representative thereof in which writing this

Agreement is expressly referred to."

Apart from the aforesaid relevant clauses, it would be appropriate to

notice a few sections of the Arbitration and Conciliation Act, 1996.

Section 2(6) is extracted herein-below in extenso :

"Sec.2(6)' : Where this Part, except section 28, leaves the parties free to

determine a certain issue, that freedom shall include the right of the

parties to authorise any person including an institution, to determine that

issue."

Section 20 is the provision for deciding the place of arbitration, which is

extracted herein-below in extenso :

"Sec.20 Place of arbitration- (1) The parties are free to agree on the

place of arbitration.

(2) Failing any agreement referred to in sub-section (1), the place of

arbitration shall be determined by the arbitral tribunal having regard to

the circumstances of the case, including the convenience of the parties.

(3) Notwithstanding sub-section (1) or sub-section (2), the arbitral

tribunal may, unless otherwise agreed by the parties, meet at any place it

considers appropriate for consultation among its members, for hearing

witnesses, experts or the parties, or for inspection of documents, goods or

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other property."

On a construction of Clause 8.4 of the Agreement, it is apparent that the

parties themselves have maintained a distinction between submission of

dispute to the arbitration tribunal and decisions as to the place of

arbitration to be determined by a Joint Arbitration Committee of three

members. In the first part of the Clause, parties have agreed for referring

any dispute or claim arising out of, or relating to the agreement to be

settled by arbitration of an arbitration tribunal. The second part of the

agreement relates to a decision as to the venue of arbitration which in the

event of lack of agreement between the patties, is required to be

determined by a Joint Arbitration Committee of three members. Such

decisions of the Committee with regard to the venue is not a decision of a

dispute or claim arising out of, or relating to the agreement and,

therefore, cannot partake the character of an award or an interim award.

Under Section 2(6) of the Arbitration and Conciliation Act, 1996, excepting

Section 28, parties are free to determine certain issues and that freedom

would include the right of the parties to authorised any person including

an institution to determine that issue. Section 20 is the provision which

sees that the parties are free to agree on the place of arbitration and

failing upon any agreement, then under sub-section (2), it has to be

determined depending upon the circumstances of the case and convenience of

the parties. A conjoint reading of Section 2(6) and Section 20, therefore

leads to the conclusion that in the event, parties do not agree with regard

to the place of arbitration, though they were free to determine the same,

then they had the right to authorise any person including an institution

and in the case in hand, the Joint Committee is such an institution for

deciding the Venue of the arbitration and such decision of the Committee

will not partake the character of adjudication of a dispute arising out of

the agreement, so as to clothe it the character of an award. Chapter V of

the Act contains Section 18 to 27 and chapter VI deals with making of

arbiter award and termination of proceedings which starts with Section 28.

The decision on the question of venue under Section 20 would not come

within making of an arbitral award starting from Section 28 and on this

view of the matter also, the said decision on the question of venue will

not be either an award or an interim award so as to be appealable under

Section 34 of the Act. The decision of the Joint Committee on the question

of the venue under Clause 8.4 is not a decision, deciding legal rights of

the parties under the contract; There is no mutuality and the said

Committee is merely a machinery for deciding the question of venue. Such a

decision does not have the characteristics of an arbitration award nor even

can it beheld to be an interim award. The conclusion of the Joint Committee

is a conclusion on the guidelines contained in second pan of Clause 8.4 of

the agreement and is not a judicial determination and as such the said

conclusion would not amount to an award. In K.K. Modi v. K.N. Modi & Ors.,

[1998] SCC 573, this court considered the question as to whether Clause (9)

of the Memorandum of understanding would constitute an arbitration

agreement. The Court answered the question in the negative after

considering as to what would be the attributes to be present for an

agreement to be considered as an arbitration agreement. Paragraph (17) of

the aforesaid judgment is quoted herein-below in extenso :

"17. Among the attributes which must be present for an agreement to be

considered as an arbitration agreement are :

(1) The arbitration agreement must contemplate that the decision of the

tribunal will be binding on the parties to the agreement,

(2) that the jurisdiction of the tribunal to decide the right of parties

must derive either from the consent of the parties or from an order of the

court or from a statute, the terms of which make it clear that the process

is to be an arbitration,

(3) the agreement must contemplate that substantive right of parties will

be determined by the agreed tribunal,

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(4) that the tribunal will determine the rights of the parties in an

impartial and judicial manner with the tribunal owing an equal obligation

of fairness towards both sides,

(5) that the agreement of the parties to refer their disputes to the

decision of the tribunal must be intended to been forceable in-law and

lastly,

(6) the agreement must contemplate that the tribunal will make a decision

upon a dispute which is already formulated at the time when a reference is

made to the tribunal."

The second part of clause 8.4 conferring powers on a Joint committee to

decide the question of venue of the arbitration does not satisfy the

aforesaid test laid down in Modi's case and, therefore would not be an

arbitration agreement. Necessarily, therefore, the ultimate decision of the

said Committee on the question of venue cannot be held to be an award, so

as to confer a right of appeal to an aggrieved person under Section 34 of

the Act. Russel on Arbitration in paragraph 2.098 deals with the question

of venue of arbitration and the same is quoted herein-below in extenso :

"Ascertaining the seat. The place of arbitration is often specified in the

arbitration agreement, by the selection of a particular place or country in

which the arbitration is to be held. If the seat is not agreed on by the

parties, the matter may be resolved by the arbitration institution or

person the parties have agreed should have the power to designate the seat,

or by the arbitral tribunal if the parties have authorised the tribunal to

do so. The rules of various arbitration institutions contain a means of

establishing the place of arbitration in the absence of express agreement

by the parties. In all other cases, it is necessary to look at the parties'

agreement and all the relevant circumstances. A reference to arbitration

under the English Arbitration Acts would be construed as implying that

English would be the place of arbitration. Similarly, provisions in an

arbitration agreement stipulating for arbitration by a local tribunal or

institution may indicate the appropriate place of arbitration."

In the present case, the second part of Clause 8.4 of the agreement

conceived of the institution of Joint Committee which institution had the

power to decide with regard to the venue and such decision of the said

Joint Committee cannot be held to be an award of a arbitral tribunal. In

view of our analysis on the different provisions of the agreement as well

as the provisions of the Act itself, we are unable to accept Mr. Desai's

argument that the agreement conceived of two arbitral proceedings, one in

relation to any dispute for the venue and the other in relation to the

dispute arising out of the agreement.

It would be appropriate for us to notice at this stage that respondent No.

2 had intimated the Manager, Arbitration Department, Japan Commercial

Arbitration Association that the parties had not been able to agree on the

place of arbitration within 30 days of the notice, calling upon them to

submit the agreement and, therefore, the said Japan Commercial Arbitration

Association could nominate a Member to the Joint Arbitration Committee and

pursuant to the said communication from respondent No. 2 the Japan

Commercial Arbitration Association, appointed respondent No. 5 as its

Member in the Joint Arbitration Committee by letter dated 25th of October,

1996. The aforesaid conduct of the Japan Commercial Arbitration Association

and the unanimous decision of the Joint Arbitration Committee about the

venue, is also quite significant in the context of the dispute.

Besides, bearing in mind the object behind the Arbitration and Conciliation

Act, 1996, as has been indicted by this Court in the ease of Konkan Railway

Corpn. Ltd. & Ors. v. Mehual Construction Co., [2000] 7 SCC 201, which is

in consonance with the UNCITRA model law, it would not be conducive to

interpret the decision of the Joint Arbitration Committee with regard to

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the venue to be an interim award, conferring a right of challenge to an

aggrieved person under Section 34 of the Act.

Mr. Desai's contention that the question of venue is of utmost importance,

since the arbitral proceeding will be conducted in accordance with the

rules applicable to the place where the arbitration proceeding is conducted

and consequently, denial of a right to appeal against the same is never

contemplated of, requires consideration. It is undoubtedly true that if the

arbitration is to be held in India, then the proceeding will be conducted

in accordance with the rules applicable in India and if the arbitrations is

to be held in Japan, it has to be conducted in accordance with the rules of

Japan Commercial Arbitration Association and as such the decision on the

question of venue is of utmost importance. But the further contention that

aggrieved party has no right to assail the same, once the said decision is

not assailed at this stage, does not appear to be correct. The ultimate

arbitral award could be assailed on the grounds indicated in sub-section

(2) of Section 34 and an erroneous decision on the question of venue, which

ultimately affected the procedure that has been followed in the arbitral

proceeding could come within the sweep of Section 34 (2) and as such it

cannot be said that an aggrieved party has no remedy at all.

This appeal, accordingly fails and is dismissed.