White Industries Australia Limited v. Coal India Limited

The Judgment of the Court was as follows:—

Ganguly, J.:— This appeal is directed against the judgment and order dated 17th November, 2003 passed by a larned Single Judge on an application filed by the appellant for rejection of the application of Coal India Limited (hereinafter referred to as CHI) under Section 34 read with Section 48 of Arbitration and Conciliation Act 1996 (hereinafter referred to as ‘ACA 1996’) for setting aside an Award made and published on 27th May, 2002 by the International Court of Arbitration (ICC) of the International Chamber of Commerce in Case No. 10558.OL/ESP/MS. The learned Judge rejected the application filed by the appellant and also held that the setting aside application filed by CIL, is maintainable.

2. The brief facts leading on to filing of the application by the appellant are that there was an agreement dated 28th September, 1989 executed in India by and between the CIL and White Industries Australia Limited (WIAL), a company incorporated under the laws of Australia (hereinafter referred to as the ‘appellant’) for developing an Open Cast Coal Mine at Piparwar in India. The said agreement contains an Arbitration clause for settling the disputes and differences between the parties. In connection with the said agreement, certain disputes arose between the parties in 1999 and various meetings were held to settle the disputes but which could not be settled. As such the appellant filed a request for arbitration with the Secretariat of the ICC on 1st July, 1999 as per the terms of the agreement. Thereupon at its first session on 6th October, 1999, the ICC fixed Paris as the place of arbitration. It was agreed between the parties that the Arbitral Tribunal should consist of three Arbitrators, one each is to be nominated by the parties and the third Arbitrator who would be the Chairman of the Tribunal would be appointed by the ICC. Accordingly, the appellant nominated Mr. Trevor Morling QC as its nominee Arbitrator and the CIL, nominated Mr. Justice B.P Jeevan Reddy as its nominee Arbitrator. Mr. Max Abrahamson was appointed by the ICC as the third Arbitrator on 3rd November, 1999. Thereafter arbitral sittings were held in London and the Arbitral Tribunal made and published its Award on 27th May, 2002 in France at Paris. That was the majority award. By agreement between the parties and for their convenience, arbitration proceedings were held at London, However, the Award was made and published, as stated above, by the Arbitral Tribunal at Paris.

3. The case of the appellant is that as the CIL, failed to make the payment under the Award the appellant filed an enforcement proceeding for execution of the Award in Delhi High Court on 11th September, 2002 and accordingly notices were issued on the CIL, in connection with the enforcement of the award. Further case of the appellant is that after such notices were served on the CIL, the appellant received a notice dated 18th September, 2002 on 4th October, 2002 to the effect that CIL had filed a proceeding for setting aside the Award under Sections 34 and 48 of ACA 1996 read with Sections 47 and 151 of the Civil Procedure Code.

4. From the averments made in Paragraphs 11 and 12 of the petition filed by the appellant before this Court it appears that the application for setting aside of the said Award was filed by the CIL on 9th September, 2002 before this Hon'ble Court and which was prior to the filing of the enforcement proceeding before the Delhi High Court at the instance of the appellant on 11th September, 2002. Thereafter, the appellant filed a transfer petition before the Hon'ble Supreme Court which was numbered as Transfer Petition (Civil) No. 877 of 2002 under the provision of Section 25 of the Civil Procedure Code read with Article 139A (2) of the Constitution of India for seeking a transfer of the Arbitration petition before the Calcutta High Court to the High Court of Delhi and for being heard along with Execution Application No. 199 of 2002. Thereafter, on the basis of the said Transfer petition notices were issued to the CIL by the Hon'ble Supreme Court on 28th October, 2002 and it is also the case of the appellant that the Supreme Court stayed the proceedings before the Calcutta High Court. In connection with the said Transfer petition the CIL filed its affidavit before the Hon'ble Supreme Court setting out the facts of the case and pointing out, inter alia, that it had already filed its application for setting aside the majority Award before Calcutta High Court. Thereafter on 20th January, 2003 the appellant withdrew the Transfer petition from the Hon'ble Supreme Court. While the said prayer for withdrawal of the Transfer petition was made before the Hon'ble Supreme Court, the Hon'ble Supreme Court passed the following order:—

After some arguments Dr. A.M Singhvi, learned Counsel for the petitioner seeks leave to withdraw the petition. The petition is accordingly dismissed as withdrawn.’

5. The appellant then filed the application being G.A No. 9341 of 2003 praying for return and rejection of the petition filed by the CIL, inter alia, on the ground that Calcutta High Court has no jurisdiction to entertain the petition filed by the respondent and the petition could only be filed in Delhi High Court where the appellant had filed its execution petition.

6. The petition filed by the appellant before this Court came up for hearing. In the said hearing the point which was urged by the appellant was that the application for setting aside of the majority Award is not maintainable in the Calcutta High Court in view of the agreement between the parties and it was also urged that filing of such application before this Court is an abuse of process. It was submitted that the impugned Award is a foreign Award and Section 48 of ACA 1996 does not contain any provision for setting aside a foreign Award. The provision for setting aside contained in Section 34 of ACA 1996 will not apply as the said Section is in part I of ACA 1996 which relates to domestic arbitration. It was also contended that the procedural law of the country, where the Award was made and published, will apply specially when the parties, by an agreement, excluded the application of Indian Arbitration Act, 1940. The learned Counsel appearing for the CIL, however, controverted those submissions and submitted that procedural law will apply till the arbitration proceedings are pending before the Arbitrator and application of such law will come to an end after the Arbitrators made and published the Award. Several Judgments were cited before the learned Judge by the learned Counsel appearing for both the parties and reference was also made to certain treatise relating to Commercial Arbitration. The learned Judge, upon consideration of those facts, inter alia, was pleased to hold that the application for setting aside of the Award filed by Coal India is maintainable in law and rejected the application filed by the appellant being G.A No. 934 of 2003. It is against the said judgment and order that this instant appeal has been filed by the appellant.

7. Initially on behalf of the appellant it was argued that there is no provision in ACA 1996 to independently initiate a setting aside proceeding by a person against whom a foreign award has been passed. The only remedy available to such person is to set up the plea for non-enforcement of the award when the same is sought to be enforced. The ground on which enforcement of a foreign award can be resisted are mentioned in various clauses of Section 48 ACA.

8. It was also argued that in any event plea for setting aside of the foreign award can be made, if at all, either under the French Law or the English Law.

9. But in the course of argument, the aforesaid stand was slightly modified by the learned Counsel for the appellant and it was contended that under the Scheme of ACA 1996 and the New York Convention, arbitration proceedings and Awards have been bifurcated in two categories on the basis of location. It was argued that if the arbitration is held in India in that case part I of ACA 1996 will apply. In view of provisions of Section 2(2) and in view of Section 2(7) of ACA 1996, the award to which part I of ACA 1996 applies will be a domestic award. But the award in question is a foreign Award in view of the provisions of Section 44 of ACA 1996 and also that the award was made in Paris. The learned Counsel admitted that in the present case the controversy is over a post-Award situation and in connection with the instant Award, part II will apply and in such case the only provision for setting aside of the Award is contained Section (48)(i)(e) of the Act. Under the provision of Section (48)(i)(e), such Award can be set aside or suspended by a competent Authority of the country in which or under the laws of which the Award was made. Admittedly the Award was made in Paris and there is no controversy about that. According to the learned Counsel the only controversy in this case rests on a proper interpretation of the expression “under the laws of which that Award was made”. So the question which falls for consideration before this Court is whether the Award was made under the laws of India.

10. According to the learned Counsel in the case of an International Arbitration like the present one, three laws at different stages are in operation. The learned Counsel also urged that in the majority of the cases all the three may be same. But often they may be different. It was also argued that an Arbitration Agreement is different from the substantive agreement even though the Arbitration Agreement may be included in the same. It was argued that in the instant case, curial law is not Indian Law. The learned Counsel also submitted that similar provisions like Section (48)(i)(e) have been considered by an American Court and it has been clearly held that the expression “under the laws of which the Award was made” refers to procedural law and not substantive law and the application for setting aside of an Award has to be made in the country where the Award was made and under whose procedural law the Award was made. The learned Counsel also submitted that in the instant case, the proper law of arbitration is not the Indian Law and this would be clear from a construction of the agreement between the parties. Since the proper law of arbitration is not Indian Law, no application can be filed for setting aside the application in India under Section (48)(i)(e) of ACA 1996 and it has also been stated that an application for setting aside of the Award has to be made before the competent authority mentioned in Section 48(i)(e) of ACA 1996. The learned Counsel also submitted that for construction of Section 48(i)(e) the Court should take into account the international character of Part II of ACA 1996 and should follow the International Rule. The learned Counsel also referred to Section 5 of ACA 1996 and the Uncitral Model Rules in order to urge that the Courts are not to intervene in any Arbitration Award except as provided for by the Statute. The learned Counsel urged that the obvious legislative intent under Section 5 of ACA 1996 is that all common law principles are excluded and the principles of common law cannot apply in view of Section (48)(i)(e). The learned Counsel also submitted that matter of enforcement is a matter of procedure and the Statute viz. ACA 1996 has to be read as a whole and thus, the judgment of the learned Single Judge should be set aside. It was also submitted that the proper law as a substantive law, namely the proper law of contract comes to an end once the Award is passed in which the rights of the parties are adjudicated.

11. The learned Counsel for the respondent, on the other hand, submitted that ACA 1996 contemplates that the foreign award can be set aside or suspended by a competent authority independently and even prior to the initiation of proceeding for enforcement of such foreign award in view of the provisions of Section 48(1)(e) of ACA 1996 and where the party is aggrieved by the award, he need not wait for setting it aside, till the proceeding for enforcement is initiated by the award-holder.

12. According to the learned Counsel, Section 48(1)(e) of ACA 1996 creates two Forums for setting aside or suspension of the award, viz. i) the competent authority of the country where the award is made and ii) the competent authority of the country under laws of which the award was made. According to the learned Counsel, the expression ‘authority’ has been deliberately used in order to cover a situation where there may be a provision in foreign statute providing for arbitral disputes to be decided by the special Tribunal. In order to cover such situation, the expression ‘authority’ has been used, which would include both Tribunal and the Court.

13. The learned Counsel also argued that the commencement of arbitration in this case admittedly was not earlier than July, 1999. At that time, Arbitration Act, 1940 was repealed by Section 85 of ACA 1996 which came into effect on 22.08.1996 The learned Counsel also argued that the act is to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards.

14. The learned Counsel also submitted that curial or procedural law ceases to be operative after the arbitration proceedings are concluded and the enforcement proceeding is independent of the proceeding before the arbitrator. The learned Counsel also submitted that application for setting aside a foreign award is to be made under the proper law of contract, which in the instant case is Indian law. The learned Counsel stated that the forum of the Indian Court is not excluded in the instant case either by express or necessary implication under the provisions of ACA 1996. It was also argued that the choice of forum lies with the person, who wants to set aside the award. In the instant case, France is the deemed seat of arbitration. But French Law has no connection whatsoever with the making of an award nor with conduct of the proceeding in connection with the award. In the award, there is no reference to any French Law either in procedure or in substance. Parties selected London as convenient forum for holding arbitration. Therefore, French Law has no connection whatsoever with the subject-matter of controversy.

15. It was also submitted that in the transfer petition filed before the Supreme Court, the appellant clearly admitted that the High Court of Calcutta is a Court of competent jurisdiction. The learned Counsel also submitted that the governing law of contract is presumed to be the governing law of arbitration agreement and the arbitration clause must be considered with the rest of the contract. The choice of place of arbitration is merely incidental. It has also been submitted that in the instant case, both the proper law of contract and the proper law of arbitration are Indian Laws. The parties have not selected the curial of any country, nor they have selected a seat of arbitration and no specific seat of arbitration has been mentioned. Paris is the Head Office of ICC but, arbitration, in the instant case, was mainly held at London. It was argued that the selection of London or Paris as a venue of arbitration was a matter of convenience of the parties and this cannot lead to any conclusion that by holding arbitration in London of Paris, there is any intention to adopt curial law of either England or France. The arbitration agreement which is contained in the contract was signed in India.

16. These are the rival contentions of the parties. Various cases were cited and reliance was placed on some well-known treatise on Arbitration Law and Conflict of Laws.

17. The Court is unable to accept the contentions urged by the appellant for various reasons discussed hereinafter.

18. The focal point for decision in this case is which law will govern the field and which is the proper law of arbitration. A decision on this question will largely depend primarily on two factors. If the parties have chosen any law, in that case the Court will have to accept the parties' choice of law and answer the question on the interpretation of the choice of the parties. If there is no express choice of law by the parties, then different considerations will apply and question will be “determined by the Conflict of Law rules of the lex arbitri.”

19. It is equally well settled that the parties are free to choose the applicable laws, whether they make an express choice or provide how the laws are to be chosen. (See Russell on Arbitration, 22nd Edition, 2003, Para 2-087, page 64)

20. In the instant case, the arbitration clause runs as follows:—

“3.2 Should the parties fails to reach an agreement within thirty (30) days after the dispute arises or any such greater period as may be mutually agreed upon, the dispute may be submitted by either party to Arbitration for final settlement under the rules of conciliation and arbitration of the International Chamber of Commerce, Paris, France, by one or more arbitrators appointed in accordance with the Rules.”

21. The clause about enforcement of the award is as under:—

“3.5 Both Parties shall make endeavours not to delay the arbitration proceedings. The decision of the arbitrator(s) shall be final and binding on both the parties. Enforcement thereof may be entered in any Court having jurisdiction.”

22. So far as governing laws are concerned, the following clause operates:—

“4.1 This Agreement shall be subject to and governed by the laws in force in India except that the Indian Arbitration Act of 1940 shall not apply.”

23. Accordingly, the appellant in their pleadings filed before this Court also admitted that the agreement shall be subject to and governed by the laws in force in India except that the Indian Arbitration Act, 1940 shall not apply (Para 5 of the Stay Petition).

24. Right to arbitation vests on the parties on their failure to settle the disputes. In this case, admittedly the cause of action for arbitration arose in July, 1999. By that time, the Arbitration Act, 1940 (AA 1940) was repealed by Section 85 of ACA 96. ACA 96 came into force in August, 1996.

25. Section 85 of ACA 96 repealed AA 1940 and also the Arbitration (Protocol & Convention) Act, 1937 and also the Foreign Awards (Recognition & Enforcement) Act, 1961.

26. Therefore, by the time, cause of action for arbitration arose, admittedly AA 1940 stood repealed and since in this case there was no pending action under AA 1940, nothing was saved.

27. In the back-ground of this factual position and the provision of Section 85 of ACA 96, this Court finds that what was excluded, namely AA 1940, is virtually of no consequence in the matter of governing laws in this case. In 1989 when the agreement was entered into by the parties the laws relating to foreign awards and laws to give effect to New York Convention held in 1958 was codified in the Foreign Award (Recognition and Enforcement) Act, 1961. Sections 2, 3, 4, 5, 8, 1961 Act are materially similar with provisions of Sections 44, 45, 46, 47 of ACA 1996. Section 7(1)(v) of 1961 Act is virtually the same as Section 48(1)(e) of ACA 96. At the time of entering into agreement by the parties, the aforesaid 1961 Act was the Indian law and that was not excluded.

28. ACA 96 is not merely a re-enactment of AA 40. ACA 96 repealed AA 40 and two other laws, namely the 1937 and 1961 Acts and ACA 1996 consolidates and amends all these three Acts. The relevant portion of the Statement of Objects and Reasons of ACA 96, inter alia, states:—

“The law on arbitration in India is at present substantially contained in three enactments, namely, the Arbitration Act, 1940 the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition & Enforcement) Act, 1961. It is widely felt that the 1940 Act which contains the general law of arbitration has become outdated. The Law Commission of India, several representative bodies of trade and industry and experts in the field of arbitration have proposed amendments to this Act to make it more responsive to contemporary requirements.”

29. All these Acts, namely AA 40, the Arbitration (Protocol & Convention) Act, 1937, Foreign Awards (Recognition & Enforcement) Act, 1961 were consolidated and amended in ACA 96 as its long title shows. ACA 96 is thus, a consolidating and amending law relating to domestic arbitration, international arbitration and enforcement of foreign arbitral awards.

30. Therefore, the governing law under the contract being the laws in force in India, when cause of action for arbitration arose in July, 1999, such laws in force in India would obviously be ACA 96. It has already been noted that in 1989 when the agreement was made, there was three Indian statutes on arbitration laws in India and out of them, only AA 1940 was excluded. But the arbitration laws of India were not excluded. On the other hand, the agreement was made subject to and governed by the laws in force in India—that is the express choice of the parties. Admittedly the cause of action for arbitration arose in July 1999 and on that day, ACA 96 which was the Indian Law in force, would be governing law in matter of arbitration and under Section 48(1)(e) of ACA 1996 that will be the law under which the arbitration was held.

31. This arbitration is an International Commercial Arbitration as defined under Section 2(f) of ACA 96. The award is also one to which the New York Convention applies and is a foreign award. Section 48 of ACA 96 is modelled on Article V of New York Convention and Section 48(1)(e) of ACA 96 is a word for word reproduction of Article V, 1(e) of New York Convention. Therefore in the facts of this case in my judgment, Indian Law will apply for setting aside the award. This view of mine is supported by the statement of law in Russel on Arbitration, 22nd Edition, Sweet & Maxwell Limited, 2003 and on which both sides relied.

32. In Para 2-088, Russell (supra) said that it is possible for at least three different laws to apply to a dispute referred to in arbitration. First is the law governing the performance obligations under the contract known as governing law. The same is also known as proper law of contract. Secondly, there is the law of arbitration agreement, and thirdly, the procedural law. It has also been suggested that there may be fourth law applicable, which may be the law governing the particular reference to arbitration, which is known as proper law of reference. This has been further clarified by Russell by explaining the expression ‘lex arbitri’ as meaning the law of the arbitration agreement. Russell explained the words curial law’ as meaning the law governing the conduct of reference and which in almost all cases is the procedural law and ‘lex fori’ mean the law of the forum, which is usually also the same as procedural law.

33. After summarising the legal position as above, Russell (supra) further proceeds to discuss the importance of the ‘seat’ of arbitration and the procedural law in para 2-099.

34. In the instant case, the main agreement of the appellant is as the seat of arbitration is outside India, the Indian Law will not apply for initiating a setting aside proceeding. It was urged that the proper interpretation of the expression ‘country under the laws of which the award was made in Section 48(1)(e) of ACA 96 would mean either the English Law or French Law, but, not Indian Law.

35. But, Russell held otherwise. In Para 2-091, Russell (supra) held that parties' choice of seat may be important. But if there is an express choice of seat and there is no express choice of the laws to govern the obligation under the contract, the choice of seat may be determinative of the choice of proper law of the contract. Here the situation is totally different. In this case there is an express choice of the law of contract, which is Indian law in force, and, on the other hand, there is no express choice of seat in Clause 3.2, which has been quoted above. Only it has been said that if the parties fail to resolve the dispute within 30 days, the dispute may be submitted by either party to arbitration for final settlement under the rules of Conciliation & Arbitration of the International Chamber of Commerce, Paris, France. Therefore, no seat of arbitration or venue has been mentioned.

36. So, under the relevant clauses, the express choice has only been made of the laws in force in India as quoted above. In this back-ground, this Court has to ascertain under the laws of which country, the arbitration was made, in other words, the proper law of arbitration. In this connection, para 2-093 of Russell (supra) may be referred to. In that para, Russell said that under the old law, the choice of seat was given considerable importance as indicating the proper law of contract, But, presently, the test is whether ‘it is sufficient to demonstrate the choice with reasonable certainty’. In the said passage, it has been also said “inference to be drawn from the choice of seat is weaker where arbitration is to be under the auspices of an international arbitral institution, such as ICC”. Russell explained that in such a situation, the appointment of a tribunal “is effected by the institution and is, therefore, less concerned with the seat”. Russell also lays down that the law of arbitration agreement usually follows the proper law of the main contract even though the arbitration agreement is separable from the main contract.

37. Following the aforesaid statement of law, I find that there is clear indication in the agreement that the laws in force in India will apply. Therefore, the proper law of main Contract being Indian laws in force, the arbitration agreement will also follow the same.

38. Russell (supra) has dealt with the effect of seat on the proper law of contract in para 2-091. In that para, Russell has considered two leading cases of the House of Lords, but, in none of which there was any express choice of the law of arbitration. One of them is James Miller & Partners Ltd. v. White Worth Tea Estates (Manchester) Ltd., reported in 1970 Appeal Cases 583. In the case of James Miller, the facts were that there was a standard form of building contract with an arbitration clause between the English Company, which owned land in Scotland and the Scottish Company was to work on that land. The contract did not disclose the choice by the parties of either the proper law of contract or the procedural law of arbitration. Even then the House of Lords held that the proper law of contract was English Law because of use of RIBA form of contract. RIBA was the standard form of building contract published in England at the relevant time. In Compagnie d' Armement Maritime SA v. Cie Tunisiennede Navigation SA, reported in 1971 AC 572, a Tunisian Company contracted to have oil shipped between two Tunisian ports by French ship owners. The English printed contract form stated that the contract will be governed by the flag of the vessels carrying the goods and the disputes should be settled by arbitration in London. The arbitrator found that the parties intended to use French Vessels. They used actually French vessels and also vessels of other countries, but, no English vessel was used and the only connection with England was the place of arbitration. On these facts, the House of Lords decided that the proper law of contract was the French law. The House came to that conclusion following the rule that the proper law is the law of the country with which the contract is most closely connected. In the instant case, apart from the fact that there is an express choice in Indian law which is both the proper law of contract and the proper law of arbitration. India is also the country with which the contract is most closely associated. The contract was signed in India and is to entirely performed in India and is to be governed by the Indian laws. So, there is no reason for this Court to hold that the expression the country “under the law of which was made” in Section 48(1)(e) of ACA 96, would mean anything but Indian law.

39. This judgment of mine gets further support from the principles deducted by Russell (supra) after discussing various cases on the point. In para 2-092, the principles formulated by Russell are:—

“(1) The proper law of the contract is not necessarily the same as the procedural law of the arbitration;

(2) Where there is an express provision about the proper law, even if the choice is unclear, considerable weight will be attached to it; and

(3) Where the only connection with a country is that it is the venue for the arbitration, that connection will not be conclusive as to the proper law in the absence of an express choice. Indeed no inference as to the proper law to be applied can be drawn where the place of arbitration is to be selected by a third party such as the ICC Court of Arbitration or where the arbitration clause contemplates alternative places of arbitration.”

40. Dicey and Morris on “The Conflict of Laws” have also dealt with this question of the proper law of contract in arbitration. The learned authors have said that party's autonomy in the choice of law cannot be disputed. Therefore the express choice of the parties is the first test in ascertaining the proper law of contract. “In the absence of an express choice as the first test the Court had to consider as a second test whether there was any other indications of the parties' intention and if there was no such intention go on to consider the third stage, namely with what system of law the contract had its closest and most real connection”. (See Dicey and Morris on Conflict of Laws, 12th Edition Chapter32, Rule 174, page 1189-1190).

41. For ascertaining the proper choice of law, the learned authors opined that such expressions as “governed by” or “to be construed in accordance with” or “subject to” a particular law are effective indications of the choice of law (see Dicey and Morris on Conflict of Laws, 12th Edition, Chapter 32, Rule 175, Pages 1217-18). In this case the expressions used to indicate the proper choice of law are “subject to” and “governed by”. So there can be no ambiguity that there is an express choice of law, which is Indian Law.

42. The choice of proper law in the context of Arbitration was also discussed by the same learned authors and it was clarified that the principle of party autonomy is restricted only to the extent it is necessary to protect public interest. It is nobody's case that the express choice here in any way contravenes public interests, on the other hand the choice is consistent with public interest.

43. The learned authors also held if there is an express choice of law to govern the contract as a whole, the arbitration will also be governed by it and further clarified it by saying “this is so whether or not the seat of the arbitration is stipulated and irrespective of the place of the seat” (Dicey and Morris, the Conflict of Laws, 13th Edition, para 16-015).

44. The learned Counsel for the appellant to argue a contrary proposition relied on para 16-119 in Dicey and Morris, 13th Edition. Under the paragraph, the learned authors said that the reference to the law of the country under which the award was made signifies the procedural law of arbitration and not the substantive law governing the contract out which the dispute arose.

45. The learned authors made those observations while explaining the scope of clause 4(f) of Rule 63 under Part III of Arbitration Act 1996, the English Law of Arbitration. Those observations were not made after taking into account a case like the present one in which there is an express choice of arbitration law. So those observations of the learned authors made without considering the factual context of any case are not applicable to the facts of this case.

46. Same principles have been indicated in ‘Law and Practice of International Commercial Arbitration’ by Redfern and Hunter, (Third Edition, Sweet & Maxwell, 1999).

47. In this case under Para 3.2 of the governing provisions it is provided that dispute would be submitted by either party for final settlement under the rules of conciliation and arbitration of International Chamber of Commerce, Paris, France with one or more arbitrators appointed in accordance with the Rules, ICC is one of the world's leading organisation in the arbitration of International Commercial Dispute.

48. Redfern and Hunter say it is a feature of International Commercial arbitration that it may take place in a country which is neutral in the sense that neither party has a place of business there. The prractice and the law of the place of arbitration is called ‘lex arbitri’. The learned authors points out that ‘lex arbitri’ is often different from the law that governs the substantive matters in dispute. (See Redfern and Hunter, (supra) Para 2-04)

49. The same is true in this case also. Under Clause 3.2, the resort to ICC rules would mean such rules will relate to only matters of procedure in the sense of fixing the time table of events, delivery of pleadings, procedure at the hearing, the formation of the arbitral tribunal and so on. These are known as curial law or procedural law. But in this case the substantial matter is governed by Indian Law. Clause 4.1 makes it clear that the agreement is subject to and governed by the law in force in India except AA, 1940. Clause 3.2 is part of the agreement and the entire agreement is thus governed by Clause 4.1

50. This is a common feature in International Commercial arbitration and that why the learned authors acknowledged that the “difference between the lex arbitri and the law governing the substance of the dispute is well established in International Commercial arbitration” (Redfern and Hunter (supra) para 2-04).

51. The learned authors have also stated that by choosing a neutral place of arbitration, the parties “do not necessarily intend to choose the law of that place to govern their relationship”. Parties may choose “a place of arbitration”, but, “they may well choose a governing law that has no connection with that place”. (Redfern and Hunter (supra), para 2-04).

52. The learned Counsel for the appellant was referring to Paragraph 10-44 of Redfern and Hunter (supra) in order to contend that the laws of the country under which the award was made would mean the procedural lews of that country in which was the seat of arbitration. It is obvious that in that paragraph, the authors were explaining the fifth ground under New York Convention for refusal of recognition of an award. Such explanation was given without considering the facts of any case particularly the facts of a case like this one in which there is an express choice of arbitration law under the governing clause. So, the recitals in para 10-44 of Redfern and Hunter (supra) do not apply to the present case.

53. The learned Counsel for the appellant in support of his contentions that the application for setting aside of the award is not maintainable before this Court also relied on a number of judgments, which I will now consider.

54. The learned Counsel relied on a Single Bench judgment of the Bombay High Court in the case of Bombay Gas Company Ltd. v. Mark Victor Mascarenhas, reported in 1998 (1) Learned Judgments 997. In that judgment, the learned Judge held that a foreign award made under ACA 96, cannot be challenged on merits in view of the provisions of Section 48 of ACA 96 or any other provisions of the said Act.

55. The learned Judge came to the conclusion that there is no provision in part II of ACA 1996, which permits a challenge to a foreign award merits. In coming to the said finding, the learned Judge found that some portions of Section 48(3) of ACA 96 become entirely otiose, but, even then, the learned Judge stuck to that conclusion.

56. The learned Judge in Para 24 of the said judgment came to the conclusion that provisions of Sections 46, 47 and 48 of ACA 1996 do not permit a challenge to the foreign award on merits under the Indian law and a party resisting the award can raise the ground mentioned in Section 48 only way of defence.

57. With due respect to the learned Judge, it is not possible for this Court to accept the said interpretation. Even the learned Counsel for the petitioner did not argue that a foreign award cannot be challenged before an Indian Court in view of Section 48(1)(e) of the said ACA 96.

58. If the interpretation given by the learned Judge in Bombay Gas is accepted, then at least a part of the provisions of Section 48(3) of ACA 96 becomes otiose and it is a well known canon of construction that no part of the statute should be so interpreted as to render it a redundance or surplusage. This judgment has not at all considered the statement of law, which have been discussed in Russell, Redfern and Hunter and Dicey and Morris. All those celebrated authorities on arbitration law opined that merely because the curial law of a country where the arbitration took place has been chosen (assuming there is such a choice in this case), that does not mean that the challenge to a foreign award has to be made under that law. The right to challenge an award being a substantive right of a party against whom the award has been passed, depends on the party's choice of law. This aspect has not at all been considered in the case of Bombay Gas and, as such, this Court is of the opinion that Section 48(1)(e) of ACA 96 has not been correctly interpreted in that judgment. Apart from that, the ratio in Bombay Gas has been substantially watered down in view of subsequent decision of the Supreme Court in Bhatia International, which I will refer to later.

59. The next judgment of a Single Bench of the Bombay High Court relied on by the appellant, was rendered in the case of Zindal Drugs Ltd. v. Noi Vazllesina Engineering SP, reported in 2002 (II) Arbitration Law Reporter 323. In Zindal Drugs, the petition filed an application for challenging a foreign award under Section 48 of ACA 1996. But that application was not pressed and the only challenge to a foreign award was made under Section 34 of ACA 96. In para 9 of the said judgment, the learned Judge held that a perusal of Section 48(1)(e) and Section 48(3) of ACA 96 would show that the Act contemplates the possibility of a foreign award being challenged before the competent authority of the country under the laws of which the award was made and there is a clear finding to the following effect. “It is obvious that such a award can be challenged under the substantive law in force in India.” This finding in Zindal Drugs contradicts the conclusion of the learned Single Bench in Bombay Gas (supra). After saying so, the learned Judge in Zindal Drugs recorded “whether such a law is in force in India or not or under which law in force in India, the petitioner can challenge the award, is neither raised not does it call for consideration before me in the present petition. The only question debated before me is whether such challenge is possible by filing an application under Section 34 of the Act”, (page 331 of the report).

60. The learned Judge held that such a challenge is not possible considering the scheme of Part-I of ACA 96, Therefore, the question, which fell for consideration before the Court in Zindal Drugs and the question, which is relevant in this case is totally different.

61. The learned Counsel for the appellant also relied on the judgment of United States Court of Appeal for the Sixth Circuit in the case of M. & C. Corporation v. Erwin Behr Gmbh & Co. K.G, a foreign Corporation. In that case, construing the language in Article V(i)(e) of the New York Convention, the Court held that the competent authority of the country under the law of which the award was made refers exclusively to procedural and not substantive law under which the arbitration proceeding was conducted and the substantive law of contract will not apply. In coming to the said finding the learned Circuit Judge relied on the decision of the International Standard Electric Corporation v. Bridas Sociedad Anomina Petrolera. The reasons, which weighed with the learned Judge of Circuit are two-fold, (1) under the terms of the New York Convention itself judicial review of award is extremely limited and extends only to procedural aspects of the determination.

62. This Court is unable to accept this reason inasmuch as the same is contrary to Article V of the New York Convention, which provides for detailed ground for challenge to a convention award. In fact, the provisions of Article V of the New York Convention and the provisions of Section 48 of ACA 96 and Section 34 of ACA 96 are almost on identical terms. Therefore, the finding that the provisions for judicial review of convention awards are extremely limited, is a finding, which is contrary to the relevant legal provision.

63. Apart from that the other reason which weighed with the learned Judge is that trace and commerce in the world market and international waters cannot be done exclusively on “our terms, governed by our laws and resolved by our Courts”. This Court cannot appreciate the aforesaid reasoning. It is well known that when in the context of the express choice by a party of substantive law, the provision in a statute is to be interpreted, such interpretation cannot be made on consideration of expediency for promoting international trade and totally ignoring the choice of the parties and the language of the statute. So the American decision, with great respect, is not of much assistance to this Court.

64. The learned Counsel for the appellant also relied on the decision of the House of Lords in Hiscox v. Cuthwaite (No. 1), reported in 1991 2 All England Reports 641 for contending that the expression ‘the country under the law of which the award was made’, can be conveniently referred to as the crucial country.

65. In an international commercial arbitration, if there is no choice of a proper law of contract or of arbitration, the curial law of the country where arbitration proceedings were held may be the proper law where the award was made. But, in the different factual context of this case, that decision in Hiscox has very little application.

66. Apart from that, in Hiscox points at issue were different, Admittedly, the arbitration agreement was governed by the English Law and the main point of controversy was over the question where the award was made. In Hiscox, the seat of arbitration was England and English procedural rules were followed, but, the arbitrator signed the award in Paris. Both the Court of Appeal and the House of Lords held that the award was made in Paris.

67. Criticising this judgment, Professor Raymond said that the decision accords more importance to form than to substance, Section 53 of the English Arbitration Act, 1996, however, changed the legal position by providing that an award is deemed to be made at the seat of arbitration, regardless of where it is signed, despatched or delivered to the parties, (See Para 2-15 page 88 of Redfern and Hunter Law and Practice of International Commercial Arbitration, 2003).

68. So the decision in Hiscox does not deal with questions which are relevant here.

69. The learned Counsel for the appellant also relied on a Single Bench decision of the Hon'ble Supreme Court in the case of Shreejee Traco (i) Pvt. Ltd. v. Paper line International INC, reported in (2003) 9 SCC 79. The facts of the case are that the petitioner, a Company was duly incorporated in India, placed an order for the supply of facial tissue paper to the respondent, a Company incorporated in New York having its principal office therein and one of the clause in pro forma invoice was ‘any disputes or claims will be submitted to arbitration in New York’. The said clause is treated by the petitioner as arbitration contract between the parties. In the said case, the question which came up for consideration is whether the place of arbitration being New York whether the Chief Justice of India or his designate would be, within the meaning of Section 11 of the Act, competent to appoint an arbitration. The learned Single Judge held on a construction of sub-section (2) of Section 2 of ACA 96 that part I of ACA 96 will not apply where the place of arbitration is not in India and as such held that the petition under Section 11(4) is not maintainable before the Chief Justice of India or his designate. But while doing so the learned Judge noticed the statement of law in Dicey and Morris on the Conflict of Laws (11th Edition) to the effect that in the absence of an express choice of law governing the contract as a whole or the arbitration agreement, a rebuttable presumption may arise that law of the country where the arbitration was agreed to be held, is the proper law of arbitration agreement.

70. After approving the aforesaid statement of law, the learned Judge found that there is nothing in the contract or correspondence between the parties to show that they intended that Indian law is to govern arbitration. In this case the facts are totally different and there is an express choice of Indian Law of Contract which is also the governing law of arbitration.

71. However, on the construction of Sections 2(2) and 11(4) of ACA 96 the attention of the learned Judge was not drawn to a three-Judge Bench decision of the Supreme Court in the case of Bhatia International v. Bulk Trading S.A reported in (2002) 4 SCC 105 where after a detailed discussion of ACA 1996 a contrary view was held on the applicability of Part-1 of ACA 96 also to International Commercial arbitrations held outside India.

72. For reasons already discussed and for reasons to be discussed hereinafter. I am unable to accept the contention urged by the appellant. In doing so I rely on the following judgments cited before us:—

1) National Thermal Power Corporation v. The Singer Company, reported in (1992) 3 SCC 551 : AIR 1993 SC 998.

2) Sumitomo Heavy Industries v. Oil and Natural Gas Commission, reported in 1994 Volume 1 Lloyd's Law Reports 45.

3) Sumitomo Heavy Industries Ltd. v. Oil and Natural Gas Commission, reported in (1998) 1 SCC 305.

4) Bhatia International v. Bulk Trading S.A reported in (2002) 4 SCC 105.

5) Nirma Ltd. v. Lurgi Energie Und Entsorgung GMBH, Germany, reported in AIR 2003 Gujarat 145.

73. In N.T.P.C (supra) the question for consideration was formulated in para 8 where the learned Judges summarising the facts stated that the award which was made in London, is an interim award between the NTPC and foreign contractor on a contract governed by the law of India and which contract was made in India and for its performance solely in India.

74. In the instant case also as noted above, all these features are present. The question in NTPC was whether the arbitration agreement was to be governed by the laws of India so as to save it from the ambit of Foreign Award Act and bring it within the provisions of Arbitration Act. Construing the express choice of Indian law between the parties and taking into consideration the statement of law made in Dicey and Morris, the Apex Court held in Para 20 that since the parties have expressly chosen that their contract, made in India, is to be governed by the law enforced in India the tests suggested by Dicey have been fully satisfied. The Apex Court also held in Paragraph 23 that save in exceptional cases proper law of arbitration agreement is normally the same as the proper law of contract. Learned Judges also held in Para 25 that where the proper law of contract has been expressly chosen by the parties, such law must govern the arbitration agreement which “though, collateral or ancillary to the main contract is nvertheless a part of such contract”. In Paragraph 27 also, the same principle was reiterated by saying that neither the rules or procedure for the conduct of arbitration contractually chosen by the parties namely ICC Rules nor the procedure followed in the Courts of the country in which the arbitration is held can supersede the overriding jurisdiction and control of the Indian law and the Indian Courts. Though the aforesaid judgment in NTPC was rendered construing the provisions of Arbitration Act, 1940 and Foreign Award Recognition and Enforcement Act, 1961, but the principles laid down on the proper law of contract and the proper law of arbitration on the statement of law made in Dicey and Morris in also relevant in the present case. The judgment in NTPC was approved in Bhatia in which provisions of ACA 96 were construed.

75. The judgment of Justice Potter in Sumitomo (supra) was considered by Dicey and Morris, Conflict of Laws, (Vol. 113th Edition on, Chapter 16 in Paragraph 16-036). The learned authors summarise the ratio of Sumitomo as follows:—

“A contract concluded by a A, a Japanese Corporation, and X, an Indian Entity. Provides that disputes arising out of the contract Shall be subject to the laws of India and that such disputes shall be referred to arbitration, the proceedings of which shall be held in London. Although England is the seat of the arbitration, as a consequence of which English laws governs the arbitration, the arbitration agreement is governed by Indian law.”

76. It is obvious from the aforesaid appreciation of the ratio of Sumitomo that English Court entertained the proceedings before it in view of the fact that an arbitration, in fact, was going on in London which is obviously within the jurisdiction of the English Court. Even then the Court held, as has been summed up by Dicey and Morris, that the arbitration agreement is governed by Indian Law. Here no Court was moved when arbitration proceedings were going on. The setting aside proceedings were filed after the award was made. This makes all the difference.

77. The judgment of Justice Potter in Sumitomo (supra) was approved by Supreme Court in its judgment in Sumitomo (supra) and the question which fell for Courts consideration was noted in Para 7 and the said question was “What is the area of operation of the curial law?” The said question was answered by Justice Bharucha (as His Lordship then was) after discussing the statement of law in “Law and Practice of Commercial Arbitration in England” by Mustill & Boyd (2nd Edition) and also various other judgments. The learned Judge held that the authority of the Court, administering curial - law ceases when the proceedings before the arbitrator are concluded. The learned Judge also held that the curial law operates during the continuance of the proceedings before the arbitrator to govern the procedure and conduct thereof. In Paragraph 12 the learned Judge approved the law stated in Mustill and Boyd (supra) that after the award, the reference comes to an end and arbitrators become functus officio. Thereafter enforcement of an award is a process which is subsequent to an independent of the proceedings before the arbitrator and is not governed by the curial law or the procedural law which the arbitrator followed in the conduct of arbitration (Para 12).

78. The same thing is true for setting aside the award also. In Paragraph 16, the learned Judge held that the law which would apply to the filing of the award, to its enforcement and to its setting aside, would be the law governing this agreement to arbitrate and the performance of the agreement. The learned Judge referred to clause 17 of the contract in Sumitomo (which is similar to the governing law in this case) and held that there is no doubt that the law governing the contract and the law governing the rights and obligation of the parties will be governed by the law of India. Justice Potter's judgment in Sumitomo (supra) was expressly approved.

79. In Bhatia's case (supra) the Supreme Court in Paragraphs 1 and 2 recorded the contention on behalf of the appellant before it and the contentions of the appellant in the instant case are almost identical. But ultimately those contentions were repelled by the Hon'ble Supreme Court upon a detailed discussion of the various provisions of ACA 96. In Paragraph 26 of the Judgment, the learned Judges held in very clear terms that ACA 96 is a consolidate and intergrated act and the general provisions applicable to arbitrations mentioned in Part I are not to be repeated in all the Chapters and Parts unless the statute expressly states that they are not to apply or where in respect of a matter there is a separate provision in a separate Chapter or Part.” (Para 26, Page 121).

80. Examination the provisions of Part II, the learned Judges held that Part II deals with enforcement of various foreign award and that is why Sections 44 and 53 define foreign awards as awards covered by the arbitrations under the New York Convention and Geneva Convention. Thus Part II contains provisions for enforcement of such foreign awards which would necessarily be different. To the extent separate provision of enforcement of foreign award has been made in Part II, the provisions of Part I will not apply. The learned Judges also added that in respect of arbitration not having taken place in India, all or some of provisions of Part I may be excluded by express or implied agreement of the parties. But if there is no express exclusion of any provisions of Part I, provisions of Part I shall apply to foreign award.

81. The learned Judges clarified this by saying that the non-obstante Clauses in Sections 45 and 54 have been used to indicate that the provisions of Part I, unless excluded, would apply to Part II. The said position has been further reiterated in Paragraph 32 of the Judgment by saying that Part I will apply to all arbitations and to all proceedings relating thereto and it was also held that in the cases of international commercial arbitration, held out of India, also Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provision. In such a case of express exclusion, the laws or rules chosen by the parties would prevail. This Court finds that while construing the provisions of ACA 96, a consolidating and amending statute, the Hon'ble Supreme Court, if I may say so with respect, followed a comprehensive mode of interpretation by considering the intention behind the law and also by considering the Act as a whole.

82. The importance of this mode of interpretation was also highlighted by the House of Lords in Attorney General v. HRH Prince Earnest Augustus of Hanover, reported in 1957 (1) All England Reports 49. The pertinent observations of Lord Somerwail in His Lordship's speech at page 61 of the report are very instructive. To the same effect is another judgment of the House of Lords in Associated Newspaper Ltd. v. Registrar of Restrictive Trading Agreements, reported in 1964 (1) All England Reports 55. At page 58-59 of the report, Lord Evershed spoke in the same voice and pointed out the importance of a centextual interpretation of statute.

83. The Division Bench of Gujarat High Court in Nirma Ltd. (supra) followed the decisions in N.T.P.C (supra), the Supreme Court decision in Sumitomo (supra) and also of Bhatia (supra) and held in Para 9 that in a case in which there is an express choice of Indian law, competent Indian Courts can entertain application for setting aside under Section 34. This Court is in respectful agreement with the views expressed by Gujarat High Court.

84. I am humbly of the opinion that the earlier decision of Bhatia (supra) rendered by a three Judge Bench of the Supreme Court will be treated as a binding precedent on interpretation of the provision of ACA 1996 and the applicability of Part I to international commercial arbitration. Unfortunately the notice of the learned Single Bench delivering the later judgment in Shreejee Traco (supra) was not drawn to the ratio in Bhatia's case.

85. It is well settled that in the case of a divergence of opinion between two judgments of the Apex Court the one delivered by a Larger Bench will prevail. (See Union of India v. Raghubir Singh, (1989) 2 SCC 754, at 778, Para 28).

86. In the instant case, the appellant also while filing its transfer petition before the Hon'ble Supreme Court accepted Calcutta High Court, as a Court of competent jurisdiction in which the setting aside application was filed by the respondent. (See para 14 of Transfer Petition).

87. Transfer Petition was filed, inter alia, on the ground of convenience and to avoid a conflict of judicial decision. Therefore, having already accepted that Calcutta High Court is a Court of competent jurisdiction to entertain the setting aside proceeding, the appellant should have not turned round and challenged the jurisdiction of Calcutta High Court after withdrawing its transfer proceeding from the Hon'ble Supreme Court.

88. In so far as the territorial jurisdiction of Calcutta High Court is concerned, no argument questioning the same has been made before us. In Paragraph 47 of the respondent's-petition for setting aside filed before the Calcutta High Court, there are detailed averments about territorial jurisdiction of Calcutta High Court and those averments were never contested by the appellants. We however, do not enter into any finding on those averments.

89. For the reasons aforesaid, this Court is of the opinion that the proceeding for setting aside the award in question is maintainable before the Calcutta High Court. The appeal is accordingly dismissed.

90. However, the Court does not give any opinion on the merits of the setting aside application and the same will be considered by the appropriate Court in accordance with law.

91. However, there will be no order as to costs.

92. Urgent xerox certified copy, if applied for, may be given expeditiously to the parties.

Sen, J.:— I agree.

S.K.G