1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

CIVIL APPEAL NO. 4628 OF 2018

Union of India …Appellant(s)

VERSUS

Hardy Exploration and Production …Respondent(s)

(India) INC

J U D G M E N T

Dipak Misra, CJI

The present appeal arose from the final judgment and order dated

27

th

July, 2016 passed by the High Court of Delhi at New Delhi in FAO

No. 59 of 2016 whereby the Division Bench of the High Court had

dismissed the appeal preferred by the Union of India, the appellant

herein, assailing the order dated 9

th

July, 2015 passed by the learned

Single Judge in OMP No. 693 of 2013 and the order dated 20

th

January,

2016 passed in Review Petition No. 400 of 2015 in OMP No. 693 of

2013. The Division Bench took note of the fact that the appellant had

2

challenged the legal propriety and correctness of the award made by the

Arbitrators in favour of the respondents under Section 34 of the

Arbitration and Conciliation Act, 1996 (for brevity „the Act‟). The said

application was contested by the respondent raising many a ground, but

the thrust of the objection related to the maintainability of the application

under Section 34 of the Act. It was contended before the High Court that

the courts in India do not have the jurisdiction to entertain an application

under Section 34 of the Act to challenge the legality of the award in

question. The learned Single Judge, vide order dated 9

th

July, 2015,

accepted the preliminary objection and came to hold that in view of the

terms of the agreement and the precedents holding the field, the Indian

courts have no jurisdiction to entertain the application. Being of this

view, the learned Single Judge did not advert to the other grounds urged

in the petition.

2. Being grieved by the aforesaid order, the Union of India preferred

an appeal under Section 37(2) of the Act before the Division Bench

which concurred with the opinion expressed by the learned Single

Judge.

3. In appeal by special leave, the two-Judge Bench in Union of India

v. Hardy Exploration and Production (India) INC

1

referred to certain

1 (2018) 7 SCC 374

3

decisions from foreign jurisdictions, namely, Naviera Amazonica

Peruana S.A. v. Compania Internacional De Seguros Del Peru

2

,

Hiscox v. Outhwaite

3

, Union of India v. McDonnell Douglas Corpn.

4

,

C v. D

5

, C v. D

6

, Braes of Doune Wind Farm (Scotland) Limited v.

Alfred McAlpine Business Services Limited

7

, Shashoua and Ors. v.

Sharma

8

, Sulamerica Cia Nacional De Seguros S.A. and Ors. v.

Enesa Engenharia SA & Ors.

9

, (1) Enercon GMBH (2) Wobben

Properties GMBH v. Enercon (India) Ltd.

10

and Govt. Of India v.

Petrocon India Ltd.

11

Apart from the above, the decisions rendered in

Sumitomo Heavy Industries Ltd. v. ONGC Ltd. and Others

12

, Bhatia

International v. Bulk Trading S.A. and Another

13

, Venture Global

Engineering v. Satyam Computer Services Ltd. & another

14

,

Videocon Industries Limited v. Union of India and another

15

, Dozco

India Private Ltd. v. Doosan Infracore Co. Limited

16

, Bharat

2 (1988) (1) Lloyd’s Law Reports 116

3 (1992) 1 AC 562

4 (1993) 2 Lloyd’s Law Reports 48

5 (2007) EWCA Civ 1282 (CA)

6 (2008) 1 Lloyd’s Law Reports 239

7 (2008) EWHC 426 (TCC)

8 (2009) EWHC 957 (Comm.)

9 (2012) EWCA Civ 638

10 (2012) EWHC 3711 (Comm.)

11 (2016) SCC Online MYFC 35

12 (1998) 1 SCC 305

13 (2002) 4 SCC 105

14 (2008) 4 SCC 190

15 (2011) 6 SCC 161

16 (2011) 6 SCC 179

4

Aluminium Company v. Kaiser Aluminium Technical Services INC

17

,

Enercon (India) Ltd. & Others v. Enercon GMBH & Another

18

,

Reliance Industries Limited and another v. Union of India

19

,

Harmony Innovation Shipping Ltd. v. Gupta Coal India Limited and

another

20

, Union of India v. Reliance Industries Limited and

Others

21

, Eitzen Bulk A/s & others v. Ashapura Minechem Limited

and another

22

, Imax Corporation v. E-City Entertainment (India) Pvt.

Lid.

23

and Roger Shashoua and others v. Mukesh Sharma and

others

24

were also referred to.

4. The two-Judge Bench noted:-

“17. The argument of both the learned senior

counsel mainly centered around to one question

which, in our opinion, does arise in the appeal,

namely, when the arbitration agreement specify the

“venue” for holding the arbitration sittings by the

arbitrators but does not specify the “seat”, then on

what basis and by which principle, the parties have

to decide the place of “seat” which has a material

bearing for determining the applicability of laws of a

particular country for deciding the post award

arbitration proceedings.

xxx xxx xxx

17 (2012) 9 SCC 552

18 (2014) 5 SCC 1

19 (2014) 7 SCC 603

20 (2015) 9 SCC 172

21 (2015) 10 SCC 213

22 (2016) 11 SCC 508

23 (2017) 5 SCC 331

24 (2017) 14 SCC 722

5

20. One of the arguments of Dr. Singhvi, learned

senior counsel was that the decision rendered by

Three Judge Bench in the case of Sumitomo Heavy

Industries Ltd. vs. ONGC Ltd. & Others (supra) on

which great reliance was placed by Mr. Tushar

Mehta, learned ASG has lost its efficacy, though

approved by another recent decision of Three

Judge Bench in Bharat Aluminum Company vs.

Kaiser Aluminum Technical Services INC (supra),

for the reason that it was rendered under the

Arbitration Act, 1940, which now stands repealed by

Arbitration Act, 1996 and secondly, it was rendered

in relation to Section 9 of the Foreign Awards

(Recognition and Enforcement) Act, 1961, which

also now stands repealed by 1996 Act.

21. It was his submission that while approving the

ratio of Sumitomo Heavy Industries Ltd. (supra)

these two factors which have some relevance on its

efficacy do not seem to have been examined in the

case of Bharat Aluminum Company (supra) .

22. Dr. Singhvi also urged that what is the effect of

UNCITRAL Model Law, when they are made part of

the arbitration agreement for deciding the question

of “seat” has also not been so far decided in any of

the earlier decisions.”

5. Appreciating the same, the learned Judges opined thus:-

“23. In our opinion, though, the question regarding

the “seat” and “venue” for holding arbitration

proceedings by the arbitrators arising under the

Arbitration Agreement/ International Commercial

Arbitration Agreement is primarily required to be

decided keeping in view the terms of the arbitration

agreement itself, but having regard to the law laid

down by this Court in several decisions by the

Benches of variable strength as detailed above, and

further taking into consideration the aforementioned

submissions urged by the learned counsel for the

parties and also keeping in view the issues involved

6

in the appeal, which frequently arise in International

Commercial Arbitration matters, we are of the

considered view that this is a fit case to exercise our

power under Order VI Rule 2 of the Supreme Court

Rules, 2013 and refer this case (appeal ) to be dealt

with by the larger Bench of this Court for its

hearing.”

That is how the matter has been placed before us.

6. At the very beginning, we may note with profit that Mr. Tushar

Mehta, learned Additional Solicitor General appearing for the Union of

India and Dr. Abhishek Manu Singhvi, learned senior counsel appearing

for the respondent very fairly stated that no reference was called for and

there is no justification to answer the reference, but to deal with the case

on its own merits. In spite of the said submission advanced at the Bar,

we think it appropriate to put the controversy to rest as the two-Judge

Bench thought it appropriate to refer the matter to a larger Bench.

7. It may be usefully noted that the two-Judge Bench has also taken

note of some of the decisions rendered by the Constitution Bench and

some by a strength of three Judges and two Judges. One of the

submissions that was advanced before the two-Judge Bench was that in

Bharat Aluminium Company (supra), the decision in Sumitomo Heavy

Industries Ltd. (supra) had not been examined. To appreciate the

controversy, first we have to analyse what has been said in Sumitomo

Heavy Industries Ltd. (supra). The controversy in the said case related

7

to laws governing arbitration under the Arbitration Act, 1940 (hereinafter

referred to as „the 1940 Act‟). The learned Judges referred to some

passages from paragraph 10 which contains a chapter on „The

Applicable Law and the Jurisdiction of the Court‟. The three-Judge

Bench reproduced some passages from sub-title „Laws Governing the

Arbitration‟ which read thus:-

"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 o f 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

8

as the law governing the obligation to arbitrate. It is,

however, open to the parties to 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

9

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 dispute.

xxx xxx xxx

In the absence of express agreement, there is

a strong prima facie presumption tha 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 that is the

country most closely connected with the

proceedings. So in order to determine the curial law

in the absence of an express choice by the parties it

is first necessary to determine the seat of the

arbitration, by construing the agreement to arbitrate”

After reproducing the same, the Court opined:-

“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 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

10

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."

Eventually, the Court concluded:-

“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.”

8. On a careful reading of the aforesaid decision, it is quite vivid that

the controversy related to the 1940 Act and the discussion pertained to

11

foreign award under the Foreign Awards (Recognition and Enforcement)

Act, 1961 (for brevity, „the 1961 Act‟). Thus, the principle laid down

therein is in no way applicable to the concept of determination of

jurisdiction as has been dealt with in BALCO case and also the

conception of implied exclusion as Bhatia International (supra) states.

Quite apart from that, we shall also advert to the later authorities how

they have understood the said decision.

9. In Bhatia International (supra), a Bench of this Court was dealing

with the applicability of Section 9 of the Act and the jurisdiction of the

courts in India. Referring to various aspects, the Court held:-

“To conclude we hold that the provisions of Part I

would apply to all arbitrations and to all proceedings

relating thereto. Where such arbitration is held in

India the provisions of Part I would compulsory

apply and parties are free to deviate only to the

extent permitted by the derogable provisions of Part

I. In cases of international commercial arbitrations

held out of India provisions of Part I would apply

unless the parties by agreement, express or

implied, exclude all or any of its provisions. In that

case the laws or rules chosen by the parties would

prevail. Any provision, in Part I, which is contrary to

or excluded by that law or rules will not apply.”

10. A contention was raised before the Court that when the parties had

agreed that the arbitration shall be as per the ICC Rules, by necessary

implication, Section 9 would not apply. The learned Judges referred to

Article 23 of the ICC Rules and, thereafter, came to hold that:-

12

“Thus Article 23 of the ICC rules permits parties to

apply to a competent judicial authority for interim

and conservatory measures. Therefore, in such

cases an application can be made under Sectionof

the said Act.

Lastly it must be stated that the said Act does

not appear to be a well drafted legislation. Therefore

the High Courts of Orissa, Bombay, Madras, Delhi

and Calcutta cannot be faulted for interpreting it in

the manner indicated above. However, in our view a

proper and conjoint reading of all the provisions

indicates that Part I is to apply also to international

commercial arbitrations which take place out of

India, unless the parties by agreement, express or

implied exclude it or any of its provisions. Such an

interpretation does not lead to any conflict between

any of the provisions of the said Act. On this

interpretation there is no lacunae in the said Act.

This interpretation also does not leave a party

remedyless. Thus such an interpretation has to be

preferred to the one adopted by the High Courts of

Orissa, Bombay, Madras, Delhi and Calcutta. It will

therefore have to be held that the contrary view

taken by these High Courts is not good law.”

11. In Indtel Technical Services Private Ltd. v. W.S. Atkins Rail

Limited

25

, the designated Judge was called upon to decide the issue of

appointment of sole arbitrator. Analysing the arbitration clause and the

authority in Lesotho Highlands Development Authority v. Impregilo

SpA

26

, the Court came to hold as follows:-

"It is no doubt true that it is fairly well settled that

when an arbitration agreement is silent as to the law

and procedure to be followed in implementing the

25 (2008) 10 SCC 308

26 (2005) 3 WLR 129

13

arbitration agreement, the law governing the said

agreement would ordinarily be the same as the law

governing the contract itself. The decisions cited by

Mr Tripathi and the views of the jurists referred to in

NTPC v. Singer Co. case support such a

proposition. What, however, distinguishes the

various decisions and views of the authorities in this

case is the fact that in Bhatia International this Court

laid down the proposition that notwithstanding the

provisions of Section 2(2) of the Arbitration and

Conciliation Act, 1996, indicating that Part I of the

said Act would apply where the place of arbitration

is in India, even in respect of international

commercial agreements, which are to be governed

by the laws of another country, the parties would be

entitled to invoke the provisions of Part I of the

aforesaid Act and consequently the application

made under Section 11 thereof would be

maintainable."

12. In Reliance Industries Ltd. (I), (supra), the appellant had

challenged the decision of the High Court of Delhi whereby it had

entertained the petition preferred under Section 34 of the Act. The Court

scanned the clause relating to “Sole expert, conciliation and arbitration”

and the clause that pertained to “applicable law and arbitration” and

further other clauses and came to hold that once the parties had

consciously agreed that the juridical seat of the arbitration would be at

London and that the agreement would be governed by the laws of

London, the provisions of Part I of the Act would not be applicable.

13. In Videocon Industries Limited (supra), the Court referred to

Section 3 of the English Arbitration Act, 1996 which deals with the seat

14

of arbitration and Section 53 that stipulates the place where the award is

treated as made. It referred to the authority in Dozco India P. Ltd.

(supra) and, eventually, came to hold that:-

"In the present case also, the parties had agreed

that notwithstanding Article 33.1, the arbitration

agreement contained in Article 34 shall be governed

by laws of England. This necessarily implies that the

parties had agreed to exclude the provisions of Part

I of the Act. As a corollary to the above conclusion,

we hold that the Delhi High Court did not have the

jurisdiction to entertain the petition filed by the

respondents under Section 9 of the Act and the

mere fact that the appellant had earlier filed similar

petitions was not sufficient to clothe that High Court

with the jurisdiction to entertain the petition filed by

the respondents."

14. The Constitution Bench in Bharat Aluminium Company (supra)

overruled the judgments of this Court in Bhatia International (supra)

and Venture Global Engineering (supra) and opined:-

“In our opinion, the provision contained in Section

2(2) of the Arbitration Act, 1996 is not in conflict with

any of the provisions either in Part I or in Part II of

the Arbitration Act, 1996. In a foreign seated

international commercial arbitration, no application

for interim relief would be maintainable under

Section 9 or any other provision, as applicability of

Part I of the Arbitration Act, 1996 is limited to all

arbitrations which take place in India. Similarly, no

suit for interim injunction simplicitor would be

maintainable in India, on the basis of an

international commercial arbitration with a seat

outside India.

15

We conclude that Part I of the Arbitration Act,

1996 is applicable only to all the arbitrations which

take place within the territory of India.”

15. Be it noted, the larger Bench ruled that in order to do complete

justice, the law declared by this Court shall apply prospectively to all the

arbitration agreements executed after the date of delivery of the

judgment. In the said case, the Constitution Bench, while dealing with

the concept of seat/place/situs of arbitration, referred to the decisions in

Naviera Amazonica Peuana S.A. v. Compania International de

Seguros del Peru

27

and Union of India v. McDonnell Douglas

Corporation

28

and came to hold thus :-

“76. It must be pointed out that the law of the seat

or place where the arbitration is held, is normally

the law to govern that arbitration. The territorial link

between the place of arbitration and the law

governing that arbitration is well established in the

international instruments, namely, the New York

Convention of 1958 and the UNCITRAL Model Law

of 1985. It is true that the terms “seat” and “place”

are often used interchangeably. In Redfern and

Hunter on International Arbitration (Para 3.51), the

seat theory is defined thus: “The concept that an

arbitration is governed by the law of the place in

which it is held, which is the „seat‟ (or „forum‟ or

locus arbitri) of the arbitration, is well established in

both the theory and practice of international

arbitration. In fact, the Geneva Protocol, 1923

states:

27

(1998) 1 Lloyd’s Rep 116 (CA)

28

(1993) 2 Lloyd’s Rep 48

16

“2. The arbitral procedure, including the

constitution of the Arbitral Tribunal, shall be

governed by the will of the parties and by the law

of the country in whose territory the arbitration

takes place.”

The New York Convention maintains the

reference to “the law of the country where the

arbitration took place” [Article V(1)(d)] and,

synonymously to “the law of the country where the

award is made” [Articles V(1)(a) and (e)]. The

aforesaid observations clearly show that the New

York Convention continues the clear territorial link

between the place of arbitration and the law

governing that arbitration. The author further

points out that this territorial link is again

maintained in the Model Law which provides in

Article 1(2) that:

“1. (2) the provision of this Law, except Articles 8,

9, 35 and 36, apply only if the place of arbitration

is in the territory of the State.”

Just as the Arbitration Act, 1996 maintains the

territorial link between the place of arbitration and

its law of arbitration, the law in Switzerland and

England also maintain a clear link between the

seat of arbitration and the lex arbitri. The Swiss

Law states:

“176(I). (1) The provision of this chapter shall

apply to any arbitration if the seat of the Arbitral

Tribunal is in Switzerland and if, at the time when

the arbitration agreement was concluded, at least

one of the parties had neither its domicile nor its

habitual residence in Switzerland.”

(Emphasis supplied)

77. We are of the opinion that the omission of the

word “only” in Section 2(2) of the Arbitration Act,

1996 does not detract from the territorial scope of

17

its application as embodied in Article 1(2) of the

Model Law. The article merely states that the

arbitration law as enacted in a given State shall

apply if the arbitration is in the territory of that

State. The absence of the word “only” which is

found in Article 1(2) of the Model Law, from

Section 2(2) of the Arbitration Act, 1996 does not

change the content/import of Section 2(2) as

limiting the application of Part I of the Arbitration

Act, 1996 to arbitrations where the place/seat is in

India.

16. In this context, we may carefully analyse what has been stated in

Harmony Innovation Shipping Limited (supra). In the said case, the

Court relied on Reliance Industries Ltd. (I) (supra) and other decisions,

analysed the arbitration clause and held:-

“45. Coming to the stipulations in the present

arbitration clause, it is clear as day that if any

dispute or difference would arise under the charter,

arbitration in London to apply; that the arbitrators

are to be commercial men who are members of the

London Arbitration Association; the contract is to be

construed and governed by the English law; and

that the arbitration should be conducted, if the claim

is for a lesser sum, in accordance with small claims

procedure of the London Maritime Arbitration

Association. There is no other provision in the

agreement that any other law would govern the

arbitration clause.

xxx xxx xxx

48. In the present case, the agreement stipulates

that the contract is to be governed and construed

according to the English law. This occurs in the

arbitration clause. Mr Viswanathan, learned Senior

Counsel, would submit that this part has to be

18

interpreted as a part of “curial law” and not as a

“proper law” or “substantive law”. It is his

submission that it cannot be equated with the seat

of arbitration. As we perceive, it forms as a part of

the arbitration clause. There is ample indication

through various phrases like “arbitration in London

to apply”, arbitrators are to be the members of the

“London Arbitration Association” and the contract “to

be governed and construed according to the English

law”. It is worth noting that there is no other

stipulation relating to the applicability of any law to

the agreement. There is no other clause anywhere

in the contract. That apart, it is also postulated that

if the dispute is for an amount less than US $50,000

then, the arbitration should be conducted in

accordance with small claims procedure of the

London Maritime Arbitration Association. When the

aforesaid stipulations are read and appreciated in

the contextual perspective, “the presumed intention”

of the parties is clear as crystal that the juridical

seat of arbitration would be London. In this context,

a passage from Mitsubishi Heavy Industries Ltd. v.

Gulf Bank K.S.C. is worth reproducing:

“It is of course both useful and frequently

necessary when construing a clause in a

contract to have regard to the overall

commercial purpose of the contract in the

broad sense of the type and general content,

the relationship of the parties and such

common commercial purpose as may clearly

emerge from such an exercise. However, it

does not seem to me to be a proper approach

to the construction of a default clause in a

commercial contract to seek or purport to elicit

some self-contained „commercial purpose‟

underlying the clause which is or may be wider

than the ordinary or usual construction of the

words of each sub-clause will yield.”

xxx xxx xxx

19

50. Thus, interpreting the clause in question on the

bedrock of the aforesaid principles it is vivid that the

intended effect is to have the seat of arbitration at

London. The commercial background, the context of

the contract and the circumstances of the parties

and in the background in which the contract was

entered into, irresistibly lead in that direction. We

are not impressed by the submission that by such

interpretation it will put the respondent in an

advantageous position. Therefore, we think it would

be appropriate to interpret the clause that it is a

proper clause or substantial clause and not a curial

or a procedural one by which the arbitration

proceedings are to be conducted and hence, we are

disposed to think that the seat of arbitration will be

at London.

51. Having said that the implied exclusion principle

stated in Bhatia International would be applicable,

regard being had to the clause in the agreement,

there is no need to dwell upon the contention raised

pertaining to the addendum, for any interpretation

placed on the said document would not make any

difference to the ultimate conclusion that we have

already arrived at.”

17. The aforesaid passages clearly show that the arbitration clause

has to be appositely read to understand its intention so as to arrive at a

conclusion on whether it determines the seat or not.

18. In Reliance Industries Limited (II), the Court, after referring to

various decisions, came to hold that the applicability of Part I of the Act

can be excluded by necessary implication if it is found that on the facts

of the case, either the juridical seat of the arbitration is outside India or

20

the law governing the arbitration agreement is a law other than Indian

law. Referring to the decision in Harmony Innovation Shipping

Limited (supra), the Court said:-

“20. It is interesting to note that even though the law

governing the arbitration agreement was not

specified, yet this Court held, having regard to

various circumstances, that the seat of arbitration

would be London and therefore, by necessary

implication, the ratio of Bhatia International would

not apply.”

19. In Eitzen Bulk A/S (supra), the Court analysed the arbitration

clause that stipulated that the disputes under the COA were to be settled

and referred to arbitration in London and the English Law would apply.

Interpreting the said clause, the Court held:-

“33. We are thus of the view that by Clause 28, the

parties chose to exclude the application of Part I to

the arbitration proceedings between them by

choosing London as the venue for arbitration and by

making English law applicable to arbitration, as

observed earlier. It is too well settled by now that

where the parties choose a juridical seat of

arbitration outside India and provide that the law

which governs arbitration will be a law other than

Indian law, Part I of the Act would not have any

application and, therefore, the award debtor would

not be entitled to challenge the award by raising

objections under Section 34 before a court in India.

A court in India could not have jurisdiction to

entertain such objections under Section 34 in such

a case.

34. As a matter of fact the mere choosing of the

juridical seat of arbitration attracts the law

applicable to such location. In other words, it would

21

not be necessary to specify which law would apply

to the arbitration proceedings, since the law of the

particular country would apply ipso jure. The

following passage from Redfern and Hunter on

International Arbitration contains the following

explication of the issue:

“It is also sometimes said that parties have

selected the procedural law that will govern their

arbitration, by providing for arbitration in a

particular country. This is too elliptical and, as an

English court itself held more recently in Breas of

Doune Wind Farm it does not always hold true.

What the parties have done is to choose a place

of arbitration in a particular country. That choice

brings with it submission to the laws of that

country, including any mandatory provisions of its

law on arbitration. To say that the parties have

“chosen” that particular law to govern the

arbitration is rather like saying that an English

woman who takes her car to France has

“chosen” French traffic law, which will oblige her

to drive on the right-hand side of the road, to give

priority to vehicles approaching from the right,

and generally to obey traffic laws to which she

may not be accustomed. But it would be an odd

use of language to say this notional motorist had

opted for “French traffic law”. What she has done

is to choose to go to France. The applicability of

French law then follows automatically. It is not a

matter of choice.

Parties may well choose a particular place of

arbitration precisely because its lex arbitri is one

which they find attractive. Nevertheless, once a

place of arbitration has been chosen, it brings with it

its own law. If that law contains provisions that are

mandatory so far as arbitration are concerned,

those provisions must be obeyed. It is not a matter

of choice any more than the notional motorist is free

to choose which local traffic laws to obey and which

to disregard”.”

22

20. In IMAX Corporation (supra), interpreting the arbitration clause

and the ICC Rules and referring to earlier precedents, the Court ruled:-

“39. If in pursuance of the arbitration agreement,

the arbitration took place outside India, there is a

clear exclusion of Part I of the Arbitration Act. In the

present case, the parties expressly agreed that the

arbitration will be conducted according to the ICC

Rules of Arbitration and left the place of arbitration

to be chosen by ICC. ICC in fact, chose London as

the seat of arbitration after consulting the parties.

The arbitration was held in London without demur

from any of the parties. All the awards i.e. the two

partial final awards, and the third final award, were

made in London and communicated to the parties.

We find that this is a clear case of the exclusion of

Part I vide Eitzen Bulk A/S, and the decisions

referred to and followed therein.”

21. In Roger Shashoua (supra), apart from dealing with the concept

of precedents, the two-Judge Bench also scanned the anatomy of the

arbitration clause and held:-

“…the distinction between the venue and the seat

remains. But when a court finds that there is

prescription for venue and something else, it has to

be adjudged on the facts of each case to determine

the juridical seat. As in the instant case, the

agreement in question has been interpreted and it

has been held that London is not mentioned as the

mere location but the courts in London will have the

jurisdiction, another interpretative perception as

projected by the learned Senior Counsel is

unacceptable.”

23

22. We may now focus on the discussion and the ultimate conclusion

in Sumitomo Heavy Industries Ltd. (supra) and how the later

decisions under the 1996 Act perceived the same. In Bharat Aluminium

Corporation (supra) (BALCO-II), the three-Judge Bench dealt with the

decisions in Sumitomo Heavy Industries Ltd (supra) and Reliance

Industries Limited (supra) and noted thus:-

“13. Sumitomo is of no avail to the appellant. In

Sumitomo, there was no specific choice on the law

of arbitration agreement and this Court held that in

absence of such choice, the law of arbitration

agreement would be determined by the substantive

law of the contract. That is not the case in this

agreement.”

It laid emphasis on Reliance Industries Limited (II) (supra) and

opined that an application under Section 34 of the 1940 Act was not

maintainable.

23. In view of the aforesaid development of law, there is no confusion

with regard to what the seat of arbitration and venue of arbitration mean.

There is no shadow of doubt that the arbitration clause has to be read in

a holistic manner so as to determine the jurisdiction of the Court. That

apart, if there is mention of venue and something else is appended

thereto, depending on the nature of the prescription, the Court can come

to a conclusion that there is implied exclusion of Part I of the Act. The

principle laid down in Sumitomo Heavy Industries Ltd. (supra) has

24

been referred to in Reliance Industries Limited (II) and distinguished.

In any case, it has no applicability to a controversy under the Act. The

said controversy has to be governed by the BALCO principle or by the

agreement or by the principle of implied exclusion as has been held in

Bhatia International.

24. Thus, we answer the reference accordingly.

25. Having addressed the reference, we shall advert to the arbitration

clause to delineate on whether it ousts the jurisdiction of the courts in

India. Article 32 of the arbitration agreement reads as follows:-

“32.1 This Contract shall be governed and

interpreted in accordance with the laws of India.

32.2 Nothing in this Contract shall entitle the

Contractor to exercise the rights, privileges and

powers conferred upon it by this Contract in a

manner which will contravene the laws of India.”

26. Article 33 deals with “Sole expert, conciliation and arbitrator”.

Article 33.9 and 33.12 read thus:-

“33.9 Arbitration proceedings shall be conducted in

accordance with the UNICITRAL Model Law on

International Commercial Arbitration of 1985 except

that in the event of any conflict between the rules

and the provisions of this Article 33, the provisions

of this Article 33 shall govern.

xxx xxx xxx

33.12 The venue of conciliation or arbitration

proceedings pursuant to this Article unless the

parties otherwise agree, shall be Kuala Lumpur and

25

shall be conducted in English language. Insofar as

practicable the parties shall continue to implement

the terms of this contract notwithstanding the

initiation of arbitration proceedings and any pending

claim or dispute.”

[Emphasis supplied]

27. It is submitted by Mr. Tushar Mehta, learned Additional Solicitor

General appearing for the Union of India that there is no specific mention

of juridical seat but reference is to the venue. He has also drawn our

attention to the UNCITRAL Model Law which is referred to in Article 33.9

of the agreement. Article 20 of the UNCITRAL Model Law reads as

follows:-

“Article 20. Place of arbitration.—(1)The parties are

free to agree on the place of arbitration. Failing such

agreement, 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.

(2) Notwithstanding the provisions of paragraph

(1) of this article, 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 goods, other property or

documents.”

[Emphasis added]

Thus, Article 20(1) mandates “determination” of “juridical seat”

while Article 20(2) leaves it open to the Arbitral Tribunal to select

“venue”.

26

28. Article 31(3) of the UNCITRAL Model Law is as follows :-

“Article 31. Form and contents of award.—

(3)The award shall state its date and the place of

arbitration as determined in accordance with article

20(1). The award shall be deemed to have been

made at that place.”

29. On a perusal of Articles 20 and 31(3) of the UNCITRAL Model

Laws, we find that the parties are free to agree on the place of

arbitration. Once the said consent is given in the arbitration clause or it

is interpretably deduced from the clause and the other concomitant

factors like the case of Harmony Innovation Shipping Ltd. which

states about the venue and something in addition by which the seat of

arbitration is determinable. The other mode, as Article 20 of the

UNCITRAL Model Law provides, is that where the parties do not agree

on the place of arbitration, the same shall be determined by the Arbitral

Tribunal. Such a power of adjudication has been conferred on the

Arbitral Tribunal. Article 31(3) clearly stipulates that the Award shall state

the date and the place of arbitration as determined in accordance with

Article 20(1).

30. In IMAX Corporation (supra), there is reference to the ICC Rules

and the Rules provide that the place of arbitration shall be fixed by the

Court unless agreed upon by the parties. In the said case, the appellant

had proposed the venue of Arbitration as Paris in France. The

27

International Court of Arbitration decided that London, United Kingdom

would be the juridical seat of arbitration in view of Article 14(1) of the ICC

Rules and, therefore, provided on the basis of Part I of the English

Arbitration Act, 1996. The three-Judge Bench ruled:-

“24. In the present case, the arbitration clause

contemplates an award made in pursuance of the

ICC Rules without specifying the applicable law for

the arbitration agreement. It would therefore be

appropriate to hold that the question of validity of

the award should be determined in accordance with

the law of the State in which the arbitration

proceedings have taken place i.e. the English Law.

Though for the purposes of this decision we would

only hold that the conduct of the parties exclude the

applicability of Part I. In other words, where the

parties have not expressly chosen the law

governing the contract as a whole or the arbitration

agreement in particular, the law of the country

where the arbitration is agreed to be held has

primacy.

25. Here, an express choice has been made by the

parties regarding the conduct of arbitration i.e. that

a dispute shall be finally settled by arbitration

according to the ICC Rules of Arbitration. The

parties have not chosen the place of arbitration.

They have simply chosen the rules that will govern

the arbitration, presumably aware of the provision in

the rules that the place of arbitration will be decided

by ICC vide Article 14(1) of the ICC Rules. ICC

having chosen London, leaves no doubt that the

place of arbitration will attract the law of UK in all

matters concerning arbitration.”

The Court further noticed that in the said case, the seat of

arbitration had not been specified at all in the arbitration clause. There

28

was a stipulation that the arbitration shall be conducted according to the

ICC Rules and opining on the same, it was observed:-

“29. We find that in the present case, the seat of

arbitration has not been specified at all in the

arbitration clause. There is however an agreement

to have the arbitration conducted according to the

ICC Rules and thus a willingness that the seat of

arbitration may be outside India. In any case, the

parties having agreed to have the seat decided by

ICC and ICC having chosen London after consulting

the parties and the parties having abided by the

decision, it must be held that upon the decision of

ICC to hold the arbitration in London, the parties

agreed that the seat shall be in London for all

practical purposes. Therefore, there is an

agreement that the arbitration shall be held in

London and thus Part I of the Act should be

excluded.”

31. In the present case, the place of arbitration was to be agreed upon

between the parties. It had not been agreed upon ; and in case of failure

of agreement, the Arbitral Tribunal is required to determine the same

taking into consideration the convenience of the parties. It is also

incumbent on the Arbitral Tribunal that the determination shall be clearly

stated in the „form and contents of award‟ that is postulated in Article 31.

There has been no determination.

32. Be it noted, the word „determination‟ requires a positive act to be

done. In the case at hand, the only aspect that has been highlighted by

Mr. C.U. Singh, learned senior counsel, is that the arbitrator held the

meeting at Kuala Lumpur and signed the award. That, in our considered

29

opinion, does not amount to determination. The clause is categorical.

The sittings at various places are relatable to venue. It cannot be

equated with the seat of arbitration or place of arbitration which has a

different connotation as has been held in Reliance Industries Ltd. (I),

(II) (supra), Harmony Innovation Shipping Limited (supra) and in

Roger Shashoua (supra).

33. The word „determination‟ has to be contextually determined. When

a „place‟ is agreed upon, it gets the status of seat which means the

juridical seat. We have already noted that the terms „place‟ and „seat‟

are used interchangeably. When only the term „place‟ is stated or

mentioned and no other condition is postulated, it is equivalent to „seat‟

and that finalises the facet of jurisdiction. But if a condition precedent is

attached to the term „place‟, the said condition has to be satisfied so that

the place can become equivalent to seat. In the instant case, as there

are two distinct and disjunct riders, either of them have to be satisfied to

become a place. As is evident, there is no agreement. As far as

determination is concerned, there has been no determination. In Ashok

Leyland Limited and State of T.N. and another

29

, the Court has

reproduced the definition of „determination‟ from Law Lexicon, 2

nd

Edition

by Aiyar, P. Ramanatha and Black‟s Law Dictionary, 6

th

Edition. The

relevant paragraphs read thus:-

29

(2004) 3 SCC 1

30

“Determination or order.—The expression „determination‟

signifies an effective expression of opinion which ends a

controversy or a dispute by some authority to whom it is

submitted under a valid law for disposal. The expression

„order‟ must have also a similar meaning, except that it

need not operate to end the dispute. Determination or

order must be judicial or quasi-judicial. Jaswant Sugar

Mills Ltd. v. Lakshmi Chand

30

(Constitution of India, Article

136).”

“A „determination‟ is a „final judgment‟ for purposes of

appeal when the trial court has completed its adjudication

of the rights of the parties in the action. Thomas Van

Dyken Joint Venture v. Van Dyken

31

.”

The said test clearly means that the expression of determination

signifies an expressive opinion. In the instant case, there has been no

adjudication and expression of an opinion. Thus, the word „place‟ cannot

be used as seat. To elaborate, a venue can become a seat if something

else is added to it as a concomitant. But a place unlike seat, at least as

is seen in the contract, can become a seat if one of the conditions

precedent is satisfied. It does not ipso facto assume the status of seat.

Thus understood, Kuala Lumpur is not the seat or place of arbitration

and the interchangeable use will not apply in stricto sensu.

34. In view of the aforesaid analysis, the irresistible conclusion is that

the Courts in India have jurisdiction and, therefore, the order passed by

the Delhi High Court is set aside. Resultantly, the appeal stands allowed

30

AIR 1963 SC 677, 680

31

90 Wis 236, 27 NW 2d 459,463

31

and the High Court is requested to deal with the application preferred

under Section 34 of the Act as expeditiously as possible. There shall be

no order as to costs.

…………………………….CJI.

(Dipak Misra)

……………………………….J.

(A.M. Khanwilkar)

…..…………………. ………..J.

(Dr. D.Y. Chandrachud)

New Delhi;

September 25, 2018