ORAL JUDGMENT

1. Rule. Mr. R.S Sanjanwala, learned counsel waives service of notice of Rule for the respondent. In the facts and circumstances of the case, the petition is being heard and decided today.

2. This petition has been filed under Articles 226 and 227 of the Constitution of India with a prayer to issue a writ of certiorari or any other writ or order to quash and set aside the order dated 24-8-2009 rendered by the District Judge, Jamkhambalia below Exh.8 and Exh.15 in Civil Misc. Application No. 101 of 2009 and for a direction to the respondent not to enforce the execution of the judgment dated 24-7-2009.

3. Briefly stated, the facts of the case relevant to the decision of the petition are as follows. The petitioner No. 1 is a Company incorporated under the provisions of Companies Act, 1956 and the petitioner No. 2 is a shareholder of petitioner No. 1-Company. The respondent is a Company incorporated under the laws of Norway and is a party to the proceedings before the trial court in Civil Misc. Application No. 101 of 2009.

4. According to the averments made in the petition, the petitioner No. 1 entered into a contract of Affreightment dated 18-1-2008 with the respondent, which was executed by the petitioner No. 1 at Mumbai for shipment of export consignments of bauxite. It is the case of the petitioners that after the execution of the said contract, the Government of Gujarat placed an embargo upon export of bauxite mined in the State of Gujarat. The petitioner No. 1 was informed by his Agents at the port of loading that the Custom Authorities of India had demanded a licence granted by the Director General of Shipping, to call foreign flag vessels for loading in terms of Section 410 of the Merchants Shipping Act, 1958. By letter dated 27-7-2008, the petitioner No. 1 requested the Director General of Shipping to grant the necessary licence to enable it to call the respondent's vessels placed to it under the said Contract to the port of loading. The request of the petitioner No. 1 for grant of the said licence was rejected by the Director General of Shipping, vide letter dated 3-11-2008. According to the petitioners, in view of the above development they were unable to perform their part of the Contract, though ready and willing to do so, being faced with a force majeure situation, rendering the performance of obligations under the said contract, impossible. It is the case of the petitioners that in the above circumstances, the petitioners were left with no other option but to declare the said contract as frustrated, due to the above-mentioned situation, which was beyond their control, therefore, vide letter dated 29-9-2008, through e-mail, the petitioner No. 1 intimated the respondent that the said contract be treated as terminated, with effect from June 2008, for the above reasons.

4.1 The petitioner No. 1 and the respondent had entered into an Arbitration Agreement dated 18-1-2008 wherein it is stipulated in Clause No. 28, that any dispute arising under this Contract of Affreightment is to be settled, and referred to Arbitration in London. The respondent claimed damages and costs of legal proceedings totaling to the tune of U.S$ 39,208,936 and in arbitration proceedings that were initiated, appointed its Arbitrator, Mr. Tim Marshall. The Arbitrator gave notice to the petitioner No. 1 on 8-4-2009, to file its defence to the claim filed by the respondent within 21 days from the service of the Statement of Claim. The petitioners did not participate in the Arbitration proceedings. An Arbitral Award dated 26-5-2009 was passed by the sole Arbitrator Mr. Tim Marshall, inter alia granting the respondent damages for breach of contract by the petitioner, together with compound interest and damages for breach of the Arbitration Clause in the Contract of Affreightment.

4.2 The petitioner filed Civil Misc. Application No. 101 of 2009 in the District Court, Jamkhambalia for setting aside the ex-parte arbitral award dated 26-5-2009, under Section 34 of the Arbitration and Conciliation Act, 1996 (for short “The Arbitration Act”). As the respondent was taking steps to enforce and execute the ex-parte arbitral award, the petitioner filed an application at Exh.8, in Civil Misc. Application No. 101 of 2009, which has been rejected by passing the impugned order, hence the petition.

5. Mr. S.N Shelat, learned senior advocate for the petitioner has forcefully submitted as under:

(a) As the application under Section 34 of the Arbitration Act filed by the petitioners is pending before the Trial Court, in that event the provisions of Section 36 of the said Act would come into play, and the award becomes unenforceable till such time as the application under Section 34 is decided, therefore the respondent cannot enforce the award or execute the same, which legal aspect has been overlooked by the Trial Court while passing the impugned order.

(b) In spite of the provisions of Section 36, the respondent is making an attempt to enforce the award, necessitating the filing of the application before the Trial Court. The Trial Court has, after coming to the conclusion that an application under Section 34 is maintainable and the protection of Section 36 of the Arbitration Act is available to the petitioner, wrongly rejected the application of the petitioner. Such a course would render the provisions of Section 36 nugatory, as the legality of the award, which is sought to be enforced by the respondent, is the subject matter of challenge in the application under Section 34, pending before the Trial Court.

(c) On the one hand, the Trial Court has discussed the issue of territorial jurisdiction at several places but has not recorded any clear finding on this issue, which has been kept open. At the same time, the Trial Court has not granted an injunction, restraining the respondent from enforcing the arbitral award, even after coming to the conclusion that the application under Section 34 is maintainable, and the provisions of Section 36 would be applicable to the case of the petitioners.

(d) As per the contract entered into between the petitioners and the respondent, Okha is one of the Ports from where the contract could have been performed. The Factory and Undertakings of the petitioner No. 1 lies within the territorial jurisdiction of the Trial Court, and the award can only be enforced at the place where the property is situated, therefore, it cannot be said that the Trial Court does not have the territorial jurisdiction to entertain the application.

(e) The question of territorial jurisdiction is a question of fact as well as evidence, and can only be decided by the court which is hearing the application under Section 34 and till such time as the question remains open and the application under Section 34 is pending before the Trial Court, the provisions of Section 36 would be applicable and the award cannot be enforced by the respondent.

(f) The findings of the Trial Court in the impugned order are contradictory, inasmuch as even after coming to the conclusion that the application under Section 34 of the Arbitration Act is maintainable and the provisions of Section 36 would apply, it has kept the issue of territorial jurisdiction open and has refused to grant the prayers made in the application, on the ground that no prima facie case is made out and the balance of convenience is not in favour of the petitioners, who would not suffer any irreparable loss, which cannot be compensated in terms of money, if the award is enforced. Such findings are in contravention of the relevant provisions of law, especially Section 36 of the Arbitration Act, as the only protection the petitioners are seeking is that the award be not enforced till the decision of the application under Section 34.

(g) The issue of territorial jurisdiction has not been raised by the respondent, in proceedings under Section 34 of the Arbitration Act, as no reply to the application filed under the said provisions of law has been filed, yet. This issue is to be decided by the Trial Court in proceedings pending before it, which has not been done.

(h) The question whether a foreign award can be challenged under Section 34 of the Arbitration Act is to be decided by the Trial Court and just because the award has been made according to English law it does not render the petitioners remediless. This aspect has been found in favour of the petitioners by the Trial Court itself and, cannot be decided by this Court, as the proceedings are pending before the Trial Court.

(i) That the conduct of the respondent should also be taken note of by the Court, as on one hand, the respondent is participating in proceedings under Section 34 which are pending before the Trial Court, and on the other hand is enforcing the award in a foreign country, during the pendency of the application under Section 34 of the Arbitration Act.

(j) That the interference of this court is called for in the light of the findings recorded in the impugned order, which are inconsistent with the provisions of Section 34 read with Section 36 of the Arbitration Act and are contradictory in nature, therefore, the petition may be allowed and the impugned order be quashed and set aside.

7. Mr. K.S Nanavati, learned senior advocate has strongly opposed the prayers made in the petition and has submitted that:

(a) The petition itself is not maintainable as the petitioners have an alternative efficacious remedy available to them. The application at Exh.8 filed by the petitioners before the Trial Court, though not filed under any specific provision of law, is essentially an application for grant of an interim injunction, and if it is taken to be an application under the provisions of Order 39 Rules 1 and 2 of the Code of Civil Procedure, then an appeal would lie from the order rejecting the said application and a petition would not be maintainable, in view of the alternative statutory remedy available to the petitioners. If the said application is taken to be an application under Section 9 of the Arbitration Act, then an appeal under Section 37 of the said Act would lie, but in both cases a petition would not lie directly before this court. It is stated by the petitioners in the petition that there is no other alternative efficacious remedy, which is not correct, and in this view of the matter the petition may be dismissed.

(b) The Trial Court has no territorial jurisdiction to decide the application under Section 34 of the Arbitration Act filed by the petitioners as well as the application under Exh.8, and in the impugned order the Trial Court has rightly come to the conclusion that it does not have the said territorial jurisdiction.

(c) The original contract between the parties was entered into at Copenhagen and the goods were to be supplied at a Port at China. The contract between the parties contains an Arbitration Clause and the provisions of the English Arbitration Act of 1996, would be applicable to the Arbitration proceedings. As the petitioners have unilaterally terminated the contract and have failed to appoint their Arbitrator, a sole Arbitrator has rendered an ex-parte award, which is enforceable and the provisions of Section 36 of the Arbitration Act would not operate as a bar to the enforcement and execution thereof.

(d) The award under challenge is a foreign award, rendered under the English Arbitration laws which cannot be challenged under Section 34 of the Indian Arbitration Act.

(e) The provisions of Section 36 of the Arbitration Act, as they stand, do not provide that an award shall become inoperative and unenforceable during the pendency of an application under Section 34 of the Arbitration Act. Section 36 creates a legal fiction to the effect that until the application under Section 34 has been decided, the award shall not be enforceable, which does not mean that the award will loose its efficacy and become a dead letter.

(f) That the finding of the Trial Court that an application under Section 34 against the foreign award is maintainable in a court in India, is based upon certain judgments relied upon by the petitioners which are not applicable in the facts and circumstances of the case, as the factual and legal position in those cases is very different to the one obtaining in the present case.

On the strength of the above arguments, it is contended by the learned senior advocate for the respondent, that the petition be dismissed.

8. Regarding the issue of maintainability, Mr. Mihir Joshi, learned senior advocate for the petitioner has submitted in rebuttal that:

(a) The application at Exh.8 has not been filed under the provisions of Order 39, Rules 1 and 2 which only apply to a suit. The said application has been filed in the application under Section 34 of the Arbitration Act which is pending before the Trial Court, as the respondent is taking steps to enforce the award, during the pendency of the application under Section 34 of the Arbitration Act. The petitioners have filed the application at Exh.8, seeking to restrain the respondent from enforcing the award during the pendency of the said application, which prayer is in consonance to the provisions of Section 36 of the Arbitration Act and ought to have been granted by the Trial Court.

(b) The provisions of Section 9 of the Arbitration Act are not applicable in this case, as the proceedings contemplated under Section 9 are independent proceedings. As the application under Section 34 is pending, the petition is maintainable; even if the application is considered to have been filed under the provisions of Section 151 of the Code of Civil Procedure, as no appeal lies from an order passed under said provision, a petition before this court would be maintainable.

9. This court has heard the learned counsel for the respective parties at length and in great detail, perused the averments made in the petition, contents of the impugned order and other documents on record.

10. The learned counsel for the respective parties have advanced lengthy and detailed arguments and cited several judgments at the Bar. As most of the submissions made and judgments referred to have a direct bearing on the merits of the case, at this stage when the application under Section 34 of the Arbitration Act is still pending adjudication before the Trial Court, this court does not consider it proper to deal with the said submissions and judgments, as to do so would cause prejudice to the case of either party.

11. It is an admitted position that the petitioners have filed an application under Section 34 of the Arbitration Act to set aside the ex parte arbitral award dated 26-5-2009, which is pending before the Trial Court. In the impugned order, the Trial Court has clearly observed in this regard that the application under Section 34 of the Arbitration Act filed before it is maintainable, and during the pendency thereof, the protection of Section 36 would be available to the petitioner. With respect to the issue of territorial jurisdiction, the Trial Court below has not arrived at any definite finding. While addressing the question of territorial jurisdiction, the Trial Court has dealt with the contentions raised by the respondent at length. A perusal of the impugned order reveals that the Trial Court, in certain parts thereof, comes close to recording a finding, but eventually falls short of arriving at a definite conclusion. Ultimately, the question of territorial jurisdiction is left open, which means that the Trial Court has not found that it has no territorial jurisdiction to entertain the application under Section 34 of the Arbitration Act. Further, on one hand the Trial Court is of the view that the application under Section 34 of the Arbitration Act is maintainable and the provisions of Section 36 would apply, and on the other hand, it has refused to grant the relief prayed for in the application, which is in effect for restraining the respondent from enforcing the arbitral award, during the pendency of the application under Section 34 of the Arbitration Act. It is clear that there is an inherent inconsistency in the stand adopted by the Trial Court.

12. In order to clarify the issues involved, it is necessary to advert to Section 36 of the Arbitration Act, which is relevant, and is reproduced below:

“36. Enforcement.-- Where the time for making an application to set aside the arbitral award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.”

13. The question of the constitutional validity of Section 36 of th Arbitration Act came up before the Division Bench of this Court in Madhavpura Mercantile Cooperative Bank Ltd. v. Shah Bhimani Chemicals Pvt. Ltd., 2009 (1) GLH 36. Relying upon the judgment of the Apex Court in National Aluminium Company Ltd. v. Pressteel and Fabrications Ltd, AIR 2005 SC 1514, the Division Bench held as under:

“5. The scope and ambit of Section 36 of the Act, directly came up for consideration of the apex Court in National Aluminium Co. Ltd. v. Pressteel & Fabrications Pvt. Ltd. (supra) and the provision was enlarged by the Supreme Court as follows:-

“…..But then we noticed from the mandatory language of Section 34 of the 1996 Act, that an award, when challenged under Section 34 within the time stipulated therein, becomes unexecutable. There is no discretion left with the Court to pass any interlocutory order in regard to the said award except to adjudicate on the correctness of the claim made by the applicant therein. Therefore, that being the legislative intent, any direction from us contrary to that, also becomes impermissible. On facts of this case, there being no exceptional situation which would compel us to ignore such statutory provision, and to use our jurisdiction under Art. 142, we restrain ourselves from passing any such order, as prayed for by the applicant.

11. However, we do notice that this automatic suspension of the execution of the award, the moment an application challenging the said award is filed under Section 34 of the Act leaving no discretion in the Court to put the parties on terms, in our opinion, defeats the very objective of the alternative dispute resolution system to which arbitration belongs. We do not find that there is a recommendation made by the concerned Ministry to the Parliament to amend Section 34 with a proposal to empower the Civil Court to pass suitable interim orders in such cases. In view of the urgency of such amendment, we sincerely hope that necessary steps would be taken by the authorities concerned at the earliest to bring about the required change in law.”

6. The Constitutional validity of Section 36 of the Act was, as such not challenged before the Supreme Court. However, Supreme Court expressed the opinion that even under Article 142, the Apex Court has to restrain itself from passing any order ignoring the statutory provision. We also find no ambiguity in Section 36 of the Act, which reads as follows:-

“36. Enforcement - Where the time for making an application to set aside the arbitral award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.”

7. The language of Section 36 of the Act is clear and it specifically deals with enforcement of arbitration award. Section 34 deals with application for setting aside the arbitration award. Only where the time for making application to set aside the arbitral award under Section 34 of the Act has expired, or such an application has been rejected, the arbitral award can be enforced. True, arbitration award can be enforced under the Code of Civil Procedure in the same manner as if it was a decree of the Court. Under Section 151 of the Code of Civil Procedure, the Civil Court has got inherent power to make such orders as may be necessary to prevent the abuse of the process of Court. But the Court while exercising power under Section 151 of the Code, first has to consider whether exercise of such power is expressly prohibited by any other provisions of the Code of Civil Procedure and if there is no such prohibition, then the Court will consider whether such power should be exercised or not on the basis of facts mentioned in the application. In view of Section 36 of the Act placing an embargo on executing the arbitration award, the Civil Court cannot exercise powers under Section 151 of the Civil Procedure Code by issuing interim orders.

(Emphasis supplied)

14. Needless to state that this Court is in respectful agreement with the view expressed by the Division Bench.

15. This Court is conscious of the fact that the application under Section 34 of the Arbitration Act is pending before the Trial Court. The question of territorial jurisdiction, which has been raised by the respondent, has been kept open by the Trial Court. The decision of the Trial Court regarding territorial jurisdiction would, undoubtedly, have a direct bearing on the application under Section 34 of the Arbitration Act. Both the issues are, therefore, inextricably inter-woven and inter-related, as the respondent is also disputing the maintainability of the application under Section 34, on the ground of territorial jurisdiction. A careful perusal of the impugned order reveals that certain inconsistencies have crept in which are material to the issue pending before it i.e decision of the application under Section 34 of the Arbitration Act. On one hand, the Trial Court has observed in the impugned order that the application under Section 34 of the Arbitration Act is maintainable, therefore the provisions of Section 36 would be applicable. This means that the award cannot be enforced during the pendency of the application under Section 34. On the other hand, the Trial Court has, at the same time, observed that the petitioners have no prima facie case, and neither is the balance of convenience or irreparable loss in their favour. It is to be kept in mind that the application at Exh.8 is filed in the proceedings under Section 34 of the Arbitration Act, and is a part of the said proceedings. The Trial Court has decided the same as though it is an independent application, which does not appear to be the correct position, especially as the application under Section 34 is pending adjudication. The Trial Court has further observed that the petitioners have not deposited any amount payable under the award, in order to show its bona fides, so as to enable the court to grant an injunction in its favour. This observation is also inconsistent with the view taken by it that the provisions of Section 36 would apply when the application under Section 34 is pending. As already observed hereinabove, the issue of territorial jurisdiction has also been left open and has not been decided by the Trial Court.

16. Though several points and contentions have been raised by the learned counsel for the respective parties, in the considered opinion of this court all of them deeply touch upon the merits of the case and any observation made by this court regarding those contentions could seriously prejudice either of the parties in the proceedings under Section 34 of the Arbitration Act which are still pending. All the contentions raised before this court by the respective parties can be raised before the trial court in the pending proceedings. Therefore, this court does not deem it either just or proper to go into the merits of the case or make any observation regarding the submissions advanced at the Bar.

17. As the above-mentioned inconsistencies and contradictions in the impugned order render it in conflict with the relevant provisions of the Arbitration Act as discussed hereinabove, and taking into consideration the aspect that the application of the petitioners to set aside the arbitral award is pending adjudication before the Trial Court, in the considered view of this court, the interest of justice would be satisfied if the impugned order is set-aside and the matter is remanded to the Trial Court for fresh decision.

18. Accordingly, order dated 24-8-2009 rendered by the District Judge, Jamkhambalia below Exh.8 and Exh.15 in Civil Misc. Application No. 101 of 2009 is quashed and set aside. The matter is remanded to the Trial Court for fresh decision, in accordance with law.

19. The petition is partly-allowed to the above extent. Rule is made absolute to the extent indicated above. There shall be no orders as to costs.