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PETITIONER:

SUMITOMO HEAVY INDUSTRIES LTD.

Vs.

RESPONDENT:

ONGC LTD. & ORS.

DATE OF JUDGMENT: 04/12/1997

BENCH:

S.P. BHARUCHA, S.C. SEN

ACT:

HEADNOTE:

JUDGMENT:

THE 4TH DAY OF DECEMBER, 1997

Present:

Hon'ble the Chief Justice

Hon'ble Mr.Justice S.P.Bharucha

Hon'ble Mr.Justice S.C.Sen

Soli J.Sorabjee, Shanti Bhushan, B.Dutta, Milon K.Banerjee,

Sr.Advs., P.H.Parekh, Amit Dhingra, Nikihil Shakharande,

G.Joshi, G.khandpal, Virendra, G.K. Banerjee, Advs., with

them for the appearing parties.

J U D G M E N T

The following Judgment of the Court was delivered:

BHARUCHA, J.

This appeal by special leave assails the correctness of

the judgment and order of a learned single Judge of the High

Court at Bombay. By the Judgment and order the petition of

the first respondent for the issuance of a direction to the

second respondent to file the award that he had made as the

umpire in arbitration proceeding between the appellant and

the first respondent in that court was allowed.

Briefly stated, these are the facts relevant to the

issue in the appeal:

The appellant and the first respondent entered into a

contraction on 7th September, 1983, whereunder the appellant

agreed to install and commission on trunkey basis an oil

platform at Bombay High, about 100 miles north-west of

Bombay. The contract stipulated the following.

"17.0 Laws/Arbitration

17.1 Applicable Laws

All questions disputes or

difference arising under, out of or

in connection with this Contract

shall be subject to the laws of

Indian.

17.2 Arbitration

If any dispute, difference or

question shall at any time

hereafter arise between the parties

hereto or their respective

representatives or assigns in

respect of the construction of

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these presents or concerning

anything herein contained or

arising out of these presents or as

to the rights, liabilities or

duties of the said parties

hereunder which cannot be mutually

resolved by the parties, the same

shall be referred to arbitration,

the proceeding of which shall be

held at London, U.K. Within 30 days

of the receipt of the notice of

intention of appoint arbitrators

each party shall appoint an

arbitrator of its own choice and

inform the other party. Before

entering upon the arbitration, the

two arbitrators shall appoint an

umpire. In case the parties fail to

appoint its arbitrator within 30

days from the receipt of a notice

from the other party in this behalf

of if any dispute in selection of

umpire, the president of

International Chamber of Commerce,

Paris, shall appoint the arbitrator

and/or or the umpire as the case

may be.

The decision of the arbitrators and

failing to an agreed decision by

them, the decision of the umpire

shall be find and binding on the

parties.

The arbitration proceeding shall be

held in accordance with the

provision of International Chamber

of Commerce and the rules made

thereunder as amended from time to

time. The arbitration proceedings

shall be conducted in English

language."

Disputes having arisen subsequent to the completion of

the work under the contract, the appellant served notice of

arbitration on the first respondent and appointed Mr. Robert

A. MacCrindle its arbitrator. The first respondent appointed

Mr. Justice Chandrasekhar (Retired) its arbitrator. The

arbitrators nominated the second respondent as the umpire.

Preliminary hearings commenced. The appellant then applied

to the queens Bench Division, Commercial Court in London for

leave to issue and serve on the first respondent an

Originating Summons seeking an order under Section 5 of the

English Arbitration Act, 1979, to confirm that the

arbitrators had the power toe proceed with the arbitration

in default of a defence having been served by the first

respondent. A learned Judge of the Commercial Court granted

to the first respondent leave to issue and serve the said

summons. It was heard and decided in favour of the

appellant. Thereafter the first respondent's defence was

served, and a summons was issued on the first respondent's

behalf in the Commercial Court to set aside its earlier

orders. The application made by the first respondent was

decided on 23rd July, 1993 by Potter, J. (The Judgment and

order is reported in (1994) 1 LIoyd's Law Reports 45). The

arbitrators having differed, the second respondent entered

upon the reference and, on 27th June, 1995, made his award.

The award was served on the first respondent on 10th July,

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1995.

On 26th July, 1995, the first respondent filed in the

High Court at Bombay a petition praying that the second

respondent be directed, under Section 14 of the Indian

Arbitration Act, 1940, to file the award in that court. The

first respondent submitted that the award was invalid,

unenforceable and liable to be set aside under the

provisions of the said Act. The learned Judge, as

aforestated, allowed the petition.

The decision rendered by Potter, J. in the Commercial

Court is of some importance because the jurisdiction of the

English Courts was discussed. The learned Judge said:

"Before stating my reasons for that

conclusion and then turning to the

"frustration" argument, and because

questions have arisen as to whether

English law or Indian law is

appropriate to be applied at

various stages of this application,

I propose briefly to advert to the

various laws potentially applicable

to the various aspects of the

arbitral relationship which may

fall for consideration in cases of

this kind.

(1) The proper law of the

underlying contract i.e. the law

governing the contract which

creates the substantive rights and

obligations of the parties out of

which the dispute has arisen.

(2) The proper law of the

arbitration agreement, i.e. the law

governing rights and obligations of

the parties arising from their

agreement to arbitrate and, in

particular, their obligation to

submit their disputes to

arbitration and to honour an award.

This includes inter alia questions

as to the validity of the

arbitration agreement, the validity

of the notice of arbitration, the

constitution of the tribunal and

the question whether an award lies

within the jurisdiction of the

arbitrator.

(3) The proper law of the

reference, i.e. the law governing

the contract which regulates the

individual reference to

arbitration. This is an agreement

subsidiary to but separate from the

arbitration agreement itself,

coming into effect by the giving of

a notice of arbitration from which

point a new set of mutual

obligations in relation to the

conduct of the reference arise upon

lines canvassed in the Bremer

Vulkan Schiffbau and

Maschinenfabrik v. South India

Shipping Corporation, [1981] 1

Lloyd's Rep. 253 at p. 263 and

developed by Mr. Justice Mustill

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(as he then was) in Black Clawson

International Ltd. v. Papierwork

Waldhof-Aschaffenburg A.G. [1981] 2

Lioyd's Rep. 446. That law governs

the questions of whether by reason

of subsequent circumstances the

parties have been discharged

(whether by repudiation or

frustration) from their obligation

to continue with the reference of

the individual dispute, while

leaving intact the continuous

agreement to refer future disputes

pursuant to the arbitration

agreement.

(4) The curial law, i.e. the law

governing the arbitration

proceedings themselves, the manner

in which the reference is to be

conducted. It governs the

procedural powers and duties of the

arbitrators, questions of evidence

and the determination of the proper

law of the contract.

In respect of many arbitrations,

the applicable law will be the same

in all four cases. (1) will usually

be decisive as to (2), in the

absence of an express contrary

choice; (2) and (3) will very

rarely differ. However, as to (4),

it is not uncommon to encounter the

incidence of a different curial law

in cases where the parties have

made an express choice for

arbitration (frequently in London)

in a jurisdiction divorced from the

jurisdiction with which the

contract in (1) has most real

connection.

In this case, as to (1), the

parties have made an express choice

of Indian law as the proper law of

the contract. As to (2), it seems

to me likely (although) it is not

necessary finally to decide) that

the proper law of the arbitration

agreement is similarly Indian law,

since the arbitration agreement is

part of the substance of the

underlying contract and the terms

of cl. 17.1 are clear in that

respect. As to (3), it matters not

for the purpose of this application

whether the governing law in

English or Indian law, because Mr.

Dunning has conceded before me that

there is no material difference

between the two so far as

applicable to the doctrine of

frustration upon which he relies

(see also par. 7 of the affidavit

of Mr. Majumdar to that effect).

As to (4), the curial law, it seems

to me plain that it is the law of

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England. There is, it is true, no

express choice of curial law.

However, there is a clear

requirement that the arbitration

proceedings be held in London. In

the absence of express agreement,

there is a strong prima facie

presumption that the parties intend

the curial law to be the law of the

"seat" of the arbitration, i.e. the

place at which the arbitration is

to be conducted, on the ground that

is the country most closely

connected with the proceedings -

see Mustill and Boyd, 2nd ed.,

p.64."

Neither of the parties having filed an appeal from the

judgment of Potter, J., its finding bind them. Based upon

these findings, it was contended by Mr. S.J.Sorabjee,

learned counsel for the appellant, that the petition filed

by the first respondent in the High Court at Bombay fell

outside the jurisdiction of that Court for a direction to

the second respondent to file his award in court could be

given only by the courts administering the curial law, that

is to say the courts in England. The answer of Mr. Banerjee,

learned counsel for the first respondent, is that the award

having been made, the procedural or curial law had ceased to

have effect, and accordingly, the courts administering the

curial law and no jurisdiction to issue to the second

respondent a direction to file his award therein.

This, then, is the central issue in the appeal: what is

the area of operation of the curial law.

In Bank Mellat v. Helliniki Techniki S.A., 1984 (1) QB

291, the Court of Appeal said that the fundamental principle

was that in the absence of any contractual provision to the

country, "the procedural (or curial) law governing

arbitrations' was that of the forum of the arbitration,

since this was the system of law with which the agreement to

arbitrate in the particular forum would have its closest

connection. Parties to international arbitrations might well

choose London as a convenient neutral forum and "English law

will, as the curial law, apply to the conduct of the

arbitration; and the parties will, by holding their

arbitration here, subject themselves for that purpose to

English law......." (Emphasis supplied.)

In Naviera Amazonica Peruana S.A. vs. Compania

International De Seguros Peru, 1988 (1) Lloyds Law Report

116, Lord Justice Kerr summarised the state of the relevant

jurisprudence thus:

"A. All contracts which provide for

arbitration and contain a foreign

element may involve three

potentially relevant systems of

law. (1) The law governing the

substantive contract. (2) The law

governing the agreement to

arbitrate and the performance of

that agreement. (3) The law

governing the conduct of the

arbitration. In the majority of

cases all three will be the same.

But (1) will often be different

from (2) and (3). And occasionally,

but rarely, (2) may also differ

from (3)."

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He said, "Prima facie, i.e. in the absence of some

express and clear provision to the contrary it must follow

that an agreement that the curial or procedural law of an

arbitration is to be law of X has the consequence that X is

also to be the "seat" of the arbitration. The lex fori is

then the law of X, and accordingly X is the agreed forum of

the arbitration. A further consequence is then that the

Courts which are competent to control or assistant the

arbitration are the Courts exercising jurisdiction at X".

The learned Judge observed that there was no reason in

theory which precluded "parties to agree that an arbitration

shall be held at a place or in country X but subject to the

procedural laws of Y". (Emphasis supplied.)

In the Law and Practice of Commercial Arbitration in

England, Second Edition by Mustill and Boyd, there is a

chapter on "The applicable law and the jurisdiction of the

Court". Under the subtitle, "Law Governing The Arbitration",

it is said,

"An agreed reference to arbitration

involves two groups of obligations.

The first concerns the mutual

obligations of the parties to

submit future disputes, or an

existing dispute to arbitration,

and to abide by the award of a

tribunal constituted in accordance

with the agreement. It is now

firmly established that the

arbitration agreement which creates

these obligations is a separate

contract, distinct from the

substantive agreement in which it

si usually embedded, capable of

surviving the termination of the

substantive agreement and

susceptible of premature

termination by express or implied

consent, or by repudiation or

frustration, in much the same

manner as in more ordinary forms of

contract. Since this agreement has

a distinct life of its own, it may

in principle be governed by a

proper law of its own, which need

not be the same as the law

governing the substantive contact.

The second group of obligations,

consisting of what is generally

referred to as the `curial law' of

the arbitration, concerns the

manner in which the parties and the

arbitrator are required to conduct

the reference of a particular

dispute. According to the English

theory of arbitration, these rules

are to be ascertained by reference

to the express or implied terms of

the agreement to arbitrate. The

being so, it will be found in the

great majority of cases that the

curial law, i.e. the law governing

the conduct of the reference, is

the same as the law governing the

obligation to arbitrate. It is,

however, open to the parties to

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submit, expressly or by

implication, the conduct of the

reference to different law from the

one governing the underlying

arbitration agreement. In such a

case, the court looks first at the

arbitration agreement to see

whether the dispute is one which

should be arbitrated, and which has

validly been made the subject of

the reference; it then looks to the

curial law to see how that

reference should be conducted; and

then returns to the first law in

order to give effect to the

resulting award.

XXX XXX XXX

It may therefore be seen that

problems arising out of an

arbitration may, at least in

theory, call for the application of

any one or more of the following

laws-

1. The proper law of the contract,

i.e. the law governing the contract

which creates the substantive

rights of the parties, in respect

of which the dispute has arisen.

2. The proper law of the

arbitration agreement, i.e. the law

governing the obligation of the

parties to submit the disputes to

arbitration, and to honour an

award.

3. The curial law, i.e. the law

governing the conduct of the

individual reference.

XXX XXX XXX

1. The proper law of the

arbitration agreement governs the

validity of the arbitration

agreement, the question whether a

dispute lies within the scope of

the arbitration agreement; the

validity of the notice of

arbitration; the constitution of

the tribunal; the question whether

an award lies within the

jurisdiction of the arbitrator; the

formal validity of the award; the

question whether the parties have

been discharged from any obligation

to arbitrate future disputes.

2. The curial law governs' the

manner in which the reference is to

be conducted; the procedural powers

and duties of the arbitrator;

questions of evidence; the

determination of the proper law of

the contract.

3. The proper law of the reference

governs; the question whether the

parties have been discharged from

their obligation to continue with

the reference of the individual

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dispute.

XXX XXX XXX

The conclusion that we reach is that the curial law

operates during the continuance of the proceeding before the

arbitrator to govern procedure and conduct thereof. The

courts administering the curial law have the authority to

entertain applications by parties to arbitrations being

conducted within their jurisdiction for the purpose of

ensuring that the procedure that is adopted in the

proceedings before the arbitrator conforms to the

requirements of the curial law and for reliefs incidental

thereto. Such authority of the courts administering the

curial law ceases when the proceedings before the arbitrator

are concluded.

The proceedings before the arbitrator commence when he

enters upon the reference and conclude with the making of

the award. As the work by Mustill and Boyd aforementioned

puts, it with the making of a valid award the arbitrator's

authority, powers and duties in the reference come to an end

and he is "functus officio" (page 404). The arbitrator is

not obliged by law to file his award in court but he may be

asked by the party seeking to enforce the award to do so.

The need to file an award in court arises only if it is

required to be enforced, and the need to challenge it arises

if it being enforced. The enforcement process is subsequent

to and independent of the proceedings before the arbitrator.

It is not governed by the curial or procedural law that

governed the procedure that the arbitrator followed in the

conduct of the arbitrator.

Mr. Sorabjee relied upon observations in Dicey and

Morris on "The Conflict of Law, 12th Edition". The first

Rule under the heading "Arbitration" in the Chapter on

"Arbitration and Foreign Awards" reads thus:

"Rule 57 - (1) The validity, effect

and interpretation of an

arbitration agreement are governed

by its applicable law.

(2) The law governing arbitration

proceeding is the law chosen by the

parties, or, in the absence of

agreement, the law of the country

in which the arbitration is held."

In discussing clause (2) of the Rule aforementioned,

this is stated:

"The procedural law of the

arbitration will determined how the

arbitrators are to be appointed, in

so far as this si not regulated in

the arbitration agreement; the

effect of one party's failure to

appoint an arbitrator, e.g. whether

an arbitrator may be appointed by a

court, or whether the arbitration

can proceed before the sole

arbitrator appointed by the other

party, and whether the authority of

an arbitrator can be revoked. The

law will also determine what law

the arbitrators are to apply, and

whether they are expected or

allowed to decide ex aequo et bono

or as amiables compositeurs, and,

if not, whether the parties can

gave them this power or impose on

them this duty. That law will also

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determine the procedural powers and

duties of the arbitrators, e.g.

whether they must hear oral

evidence (but not their

jurisdiction to decide the dispute,

which is governed by the

arbitration agreement and the law

applicable to it) or whether the

arbitrators have been guilty of

misconduct. It will also determine

what judicial remedies are

available to a party who wishes to

apply for security for costs or for

discovery or who wishes to

challenge the award once it has

been rendered and before it is

sought to enforce it abroad, and

the circumstances in which judicial

remedies may be excluded."

(Emphasis supplied.)

Mr. Sorabjee submitted, relying upon the proposition

that the procedural law would determine what judicial

remedies were available to a party "who wishes to challenge

the award once it has been rendered and before it is sought

to enforce it abroad", that the court that administered the

curial law of the arbitration had the jurisdiction to

entertain a challenge to the award and, therefore, the

jurisdiction to receive it. The footnote relative to the

above proposition (at pave 583) reads thus:

"Whitworth Street Estates

(Manchester) Ltd. v. James Miller &

Partners Ltd. [1970] A.C. 583

(English remedies not available in

Scots arbitration)."

Mr. Banerjee submitted, and it seems to us, correctly,

that the case of James Miller & Partners Vs. Whitworth

Street Estates, 1970 A.C. 583, does not bear out the

proposition. The facts of the case, shortly put, were these:

A contract was entered into between an English company,

Whitworth, and a Scottish company, James Miller. The

Scottish company was to carry out work at the English

company's premises in Scotland. The contract did not provide

for the place of arbitration or its procedure. Disputes

arose between the parties and were referred to arbitration.

The arbitration was held in Scotland, in accordance with

Scottish law. The English company asked the arbitrator to

state his award in the form of a special case for the

decision of the English courts. The arbitrator refused to do

so on the ground that the arbitration was a Scottish

arbitration, and he issued his final award. The issue was

whether the arbitrator should be required to state his award

in the form of a special case. The case was, therefore,

concerned with the question of which law governed the

proceedings before the arbitrator and not with the question

of which law governed proceedings to set an award.

We think that our conclusion that the curial law does

not apply to the filing of an award in court must,

accordingly, hold good. We find support for the conclusion

in the extracts from Mustill and Boyd which we have quoted

earlier. Where the law governing the conduct of the

reference is different from the law governing the underlying

arbitration agreement, the court looks to the arbitration

agreement to see if the dispute is arbitrable, then to the

curial law to see how the reference should be conducted,

"and then returns to the first law in order to give effect

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to the resulting award".

The law which would apply to the filing of the award,

to its enforcement and to its setting aside would be the law

governing the agreement to arbitrate and the performance of

that agreement. Having regard to the clear terms of Clause

17 of the contract between the appellant and the first

respondent, we are in no doubt that the law governing the

contract and the law governing the rights and obligations of

the parties arising from their agreement to arbitrate, and,

in particular, their obligations to submit disputes to

arbitration and to honour the award, are governed by the law

of India; nor is there any dispute in this behalf. Section

47 of the Indian Arbitration Act, 1940, reads thus:

"47. Act to apply to all

arbitrations. - Subject to the

provisions of Section 46, and save

in so far as is otherwise provided

by any law for the time being in

force, the provisions of this Act

shall apply to all arbitrations and

to all proceedings thereunder"

Provided that an arbitration award

otherwise obtained may with the

consent of all the parties

interested be taken into

consideration as a compromise or

adjustment of a suit by any Court

before which the suit is pending."

The only other statute which is required to be

considered in the context of the provisions of Section 47 of

the 1940 Act is the Foreign Awards (Recognition and

Enforcement) Act, 1961. For the purposes of determining

whether the provision of the 1940 Act are subject to the

provisions of the 1961 Act, Section 9 is relevant. It reads

thus:

"9. Saving - Nothing in this Act

shall-

(a) prejudice any rights which any

person would have had of enforcing

in India of any award or of

availing himself in India of any

award if this Act had not been

passed, or

(b) apply to any award made on an

arbitration agreement governed by

the law of India."

By reason of Section 9(b), the 1961 Act does not apply

to any award made on an arbitration agreement governed by

the law of India. The 1961 Act, therefore, does not apply to

the arbitration agreement between the appellant and the

first respondent. The 1940 Act, applies to it and, by reason

of Section 14(2) thereof, the courts in India are entitled

to receive the award made by the second respondent. We must

add in the interests of completeness that is not the case

of the appellant that the High Court at Bombay lacked the

territorial jurisdiction to do so.

In the result, the appeal must fail, and it is

dismissed with costs.