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Sakuma Exports Limited v. Louis Dreyfus Commodities Suisse Sa .
Factual and Procedural Background
An Indian company, Sakuma Exports Ltd., entered into a contract dated 12-01-2010 with a Swiss company, Louis Dreyfus Commodities and Uisse SA, for the purchase of 2700 metric tons of Brazilian white sugar. The contract:
- Permitted shipment between 15-01-2010 and 15-02-2010.
- Designated Nhava Sheva or Kolkata (at the buyer’s option) as the port of destination.
- Was expressly “subject to the Rules of the Refined Sugar Association, London,” and stipulated that the contract would be “governed by and construed in accordance with English law.”
- Contained an arbitration clause referring “all disputes” to the Refined Sugar Association (RSA), London.
The RSA tribunal rendered a final award on 31-12-2010 in London. Sakuma Exports challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 before a Single Judge of the Bombay High Court. The Single Judge held that Indian courts lacked jurisdiction because Part I of the Act was impliedly excluded. A Division Bench, in its judgment dated 06-08-2013, affirmed that view under Section 37. Sakuma Exports then approached the Supreme Court, which delivered the present decision.
Legal Issues Presented
- Whether, under the pre-BALCO legal regime governed by Bhatia International v. Bulk Trading S.A. (2002) 4 SCC 105, the parties had impliedly excluded the application of Part I of the Arbitration and Conciliation Act, 1996, thereby ousting the jurisdiction of Indian courts to entertain a Section 34 petition.
- Consequently, whether the Bombay High Court correctly declined to entertain Sakuma Exports’ challenge to the foreign-seated arbitral award.
Arguments of the Parties
Petitioner (Sakuma Exports Ltd.)
- Contended that the arbitration clause used in the contract was not identical to the RSA’s recommended wording and did not expressly state that arbitration would be conducted “in accordance with English law.”
- On that basis, argued that Part I of the Act was not excluded and that Indian courts retained supervisory jurisdiction under Section 34.
Respondent (Louis Dreyfus Commodities and Uisse SA)
- Asserted that by incorporating the RSA Rules—particularly Rule 8—the parties had unequivocally chosen English law as the substantive and procedural law and London as the seat, thereby excluding Part I.
- Maintained that, even under Bhatia International, such an implied exclusion was legally valid and barred a Section 34 challenge in India.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552 (“BALCO”) | Held that Part I of the 1996 Act does not apply to foreign-seated arbitrations; applied prospectively to agreements executed after the BALCO decision. | Court noted BALCO but clarified that, because the contract was executed pre-BALCO, the earlier Bhatia International regime governed. |
| Bhatia International v. Bulk Trading S.A. (2002) 4 SCC 105 | Part I applies to foreign-seated arbitrations unless expressly or impliedly excluded by agreement. | Supreme Court applied the Bhatia principle and found that the parties had impliedly excluded Part I through incorporation of RSA Rules and choice of English law. |
Court's Reasoning and Analysis
The Supreme Court concurred with the Bombay High Court's detailed analysis, emphasizing the following steps:
- Incorporation of RSA Rules. The contract expressly incorporated the RSA Rules “as fully as if the same had been expressly inserted herein.”
- Effect of Rule 8 of RSA Rules. Rule 8 states that (i) the contract is deemed made in England, (ii) English law governs, (iii) England is the seat and place of performance, and (iv) all proceedings shall take place in England.
- Implied exclusion of Part I. Under Bhatia International, Part I applies unless excluded. The choice of London as the seat and English law as the governing law, coupled with Rule 8, constituted an unmistakable intention to exclude Indian procedural law.
- Petitioner's textual argument rejected. The Court held that minor deviations from the RSA’s model clause were immaterial because the overarching contractual provision still subjected the parties to the RSA Rules, which decisively pointed to English law and forum.
- Deference to lower court findings. Finding the High Court’s appreciation of facts and law correct, the Supreme Court saw no reason to interfere.
Holding and Implications
PETITION DISMISSED.
By dismissing the petition, the Supreme Court affirmed that Indian courts lack jurisdiction to set aside awards rendered in foreign-seated arbitrations when the parties have, even impliedly, excluded Part I of the Arbitration and Conciliation Act, 1996. The decision directly affects only the present parties and does not create new precedent beyond reaffirming principles already established in Bhatia International.
Shiva Kirti Singh, J.— After hearing the parties at length and upon going through the impugned judgment and order dated 6-8-2013 passed by the Division Bench of the High Court of Judicature of Bombay in Sakuma Exports Ltd. v. Louis Dreyfus Commodities and Uisse SA (2013) 6 Bom CR 218, (2013) 6 AIR Bom R 707, filed under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”), we are of the considered view that the impugned order is based upon proper appreciation of relevant facts and follows the law laid down by this Court correctly in arriving at the finding that in the facts of the case the courts in India have no jurisdiction to entertain the petition under Section 34 of the Act, challenging the international commercial award of an Arbitral Tribunal constituted by Refined Sugar Association, London.
2. There is no dispute between the parties that the Constitution Bench judgment of this Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552 overruled the earlier judgment in Bhatia International v. Bulk Trading S.A (2002) 4 SCC 105 in coming to the conclusion that Part I of the Act would have no application to international commercial arbitration held outside India, but on account of further direction that the law so declared shall apply only prospectively to all arbitration agreements executed thereafter, the arbitration agreement in the present case is to be governed by the law decided in Bhatia International (2002) 4 SCC 105. According to the judgment in Bhatia International (2002) 4 SCC 105 the provisions of Part I of the Act would apply to international commercial arbitration held out of India unless the parties by agreement, express or implied, exclude all or any of its provisions.
3. Since we are in agreement with the views of the learned High Court of Bombay, it is not necessary to go to the factual details but on account of lengthy submissions advanced on behalf of the petitioner, we feel it proper to extract para 3 of the impugned judgment (2013) 6 Bom CR 218, (2013) 6 AIR Bom R 707 which reflects not only the relevant facts but also the relevant terms and conditions of the agreement between the parties. It reads thus: (Bom CR pp. 219-20)
“3. The appellant is an Indian Company which carries on the business of import and export of sugar among other commodities. The respondent is a Swiss Company with whom the appellant entered into an agreement on 12-1-2010 for the purchase of 2700 metric tons of Brazilian white sugar of a stipulated description. The sugar was to be shipped between 15-1-2010 and 15-2-2010 at the option of the seller, the respondent. The port of destination was to be Nhava Sheva or Kolkata at the option of the appellant. Disputes arose between the parties. The agreement between the parties contained inter alia the following terms and conditions:
‘Terms and conditions
This contract is subject to the Rules of the Refined Sugar Association, London as fully as if the same had been expressly inserted herein, whether or not either or both parties to it are Members of the Association.
If any provision of this contract is inconsistent with the Rules, such provision shall prevail.’
Parties envisaged that all disputes would be submitted to arbitration. The arbitration agreement was thus:
‘Arbitration.—All disputes arising out of or in conjunction with this contract shall be referred to Refined Sugar Association, London for settlement in accordance with the rules relating to arbitration. This contract shall be governed by and construed in accordance with English law.’
A final award was passed by the Arbitral Tribunal on 31-12-2010 which was sought to be challenged by the appellant in proceedings under Section 34 of the Act of 1996 before the learned Single Judge of this Court. An objection was taken to the jurisdiction of this Court to entertain the petition on the ground that the applicability of Part I of the Act was excluded by the agreement between the parties and consequently even under the law as it then prevailed in Bhatia International (2002) 4 SCC 105, a petition under Section 34 was not maintainable. The learned Single Judge has upheld (2012) 3 Mah LJ 94, (2012) 1 Bom CR 547 the objection and has come to the conclusion that this Court has no jurisdiction to entertain a challenge to the award under Section 34. The judgment is called in question in appeal.”
4. After discussing appropriate case laws, the High Court summarised the relevant facts and its views in para 20 which also conveniently extracts Rule 8 of the Rules of the Refined Sugar Association, London. Para 20 reads as follows: (Sakuma Exports Ltd. case (2013) 6 Bom CR 218, (2013) 6 AIR Bom R 707, Bom CR pp. 227-28)
“20. In the present case, the parties have specifically made their contract subject to the Rules of the Refined Sugar Association, London. Leaving no ambiguity of interpretation the contract mandates that the Rules of the Refined Sugar Association, London are incorporated ‘as fully as if the same has been expressly inserted’ in the contract. The governing law of the contract is English law. All disputes arising out of or in conjunction with the contract were to be referred to Refined Sugar Association for settlement in accordance with the rules relating to arbitration of the association. The law in the UK is, therefore, the substantive law of the contract. The seat of the arbitration is in the UK. Parties have made it clear that the Rules of the Refined Sugar Association would govern the resolution of their disputes. Rule 8 of the Rules of the Refined Sugar Association (on which there is no dispute between the parties during the course of the hearing of the appeal) provides as follows:
‘8. For the purpose of all proceedings in arbitration, the contract shall be deemed to have been made in England, any correspondence in reference to the offer, the acceptance, the place of payment or otherwise, notwithstanding, and England shall be regarded as the place of performance. Disputes shall be settled according to the law of England wherever the domicile, residence or place of business of the parties to the contract may be or become. The seat of the arbitration shall be England and all proceedings shall take place in England. It shall not be necessary for the award to state expressly the seat of the arbitration.’
The terms of the purchase contract as well as Rule 8 of the Rules of the Refined Sugar Association would make it clear that disputes shall be settled in accordance with the law of England wherever the domicile, residence or place of business of parties to the contract may be or become. Moreover, for the purposes of all proceedings in arbitration, the contract shall be deemed to have been made in England and England shall be regarded as the place of performance. The seat of the arbitration shall be England and all proceedings shall take place in England. On the basis of these provisions, it has been submitted that parties have, by the terms of their agreement, impliedly excluded the provisions of Part I. We find merit in the submission. It is clear from the terms and conditions which have been accepted by the parties in the purchase contract, read with Rule 8 that parties have accepted English law as the governing law of the contract; that the seat of the arbitration would be London; that disputes shall be settled according to the law of England which would include the resolution of disputes and that all proceedings shall take place in England. Alternatively, even if it were to be held that parties have not provided for the curial law governing the arbitration, the decision in Bhatia International (2002) 4 SCC 105 does not prohibit the exclusion of the application of Part I on account of the proper law of the contract being a foreign law. Where the proper law governing the contract is expressly chosen by the parties, which they have done in the present case by selecting English law as the proper law of the contract, that law must, in the absence of an unmistakable intention to the contrary, govern the arbitration agreement. The arbitration agreement, though it is collateral or ancillary to the main contract is nevertheless a part of the contract. In an application for challenging the validity of an arbitral award under Section 34, the Court would necessarily have to revert to the law governing the arbitration agreement which, in our considered view, would be the law of England.”
5. Since one of the terms and conditions of the agreement makes the contract subject to the Rules of the Refined Sugar Association, London by treating the same to have been expressly inserted in the agreement, Rule 8 of the Rules of the Refined Sugar Association, London leaves no manner of doubt that the parties have not only accepted English law as the law governing the contract but the disputes and the arbitration shall also be governed by the law of England. The seat of arbitration is admittedly England.
6. The learned counsel for the petitioner highlighted that the arbitration clause is not strictly the same as recommended by Refined Sugar Association, London which clearly stipulated that the arbitration shall be conducted in accordance with the English law. But this does not take us far. The condition that the contract is subject to the Rules of the Refined Sugar Association, London which stand inserted in the contract and wordings of Rule 8 clinch the relevant issue in favour of the respondent.
7. We find no merit in the petition and the same is dismissed as such. No costs.
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