DLF Konkar

SCC Online Web Edition, Copyright © 2020
Page 1 Wednesday, April 29, 2020

Printed For: Mr. Gourab Banerji
SCC Online Web Edition: http://www.scconline.com
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2014 SCC OnLine P&H 24894 : (2014) 5 RCR (Civil) 838
In the High Court of Punjab and Haryana

(BEFORE PARAMJEET SINGH, J.)
DLF Ltd. and another … Petitioners;

Versus
Koncar-Generators and Motors Ltd. … Respondent.
Civil Revision No. 3866 of 2011
Decided on July 1, 2014
Page: 839
The Judgment of the Court was delivered by

PARAMJEET SINGH, J.:— Instant revision stemmed up out of International Chamber
of Commerce (in short ‘ICC’) arbitral award brought about by Koncar Generators and
Motors Ltd. (formerly Koncar Generatori) (in short ‘Koncar’), a Croatian Company,
against DLF Universal Ltd. (formerly DLF Industries Ltd.) and DLF Power Limited (in
short ‘DLF’), an Indian Company. Successfully obtaining a foreign arbitral award is not
Page: 840
always the end of contentious process. Success in arbitration is ultimately determined

by the successful enforcement of the award. Recognition and enforceability of foreign
arbitral award is a vital issue in the present petition which needs to be answered by
me.
2. In brief, pleaded relevant facts for disposal of this petition are to the effect that
M/s Tecil Chemical Hydro Electric Power Ltd. (hereinafter referred to as ‘TECIL’) was
setting up a power plant at Karikkayam in Pathanamthitta District of Kerala. The
project was called the Karikkayam Hydro-Electric Power Project (hereinafter referred to
as ‘Karikkayam Project’). It was a World Bank aided project. The loan for the project
had been sanctioned by Indian Renewable Energy Development Agency (in short
TREDA’). For the project, TECIL required two numbers of 7.5 MW Synchronous
Generators. To facilitate the supply of two generators to TECIL which were to be
installed at TECIL's Karikkayam site, DLF floated an enquiry dated 12.09.1995 inviting
offers for the same. In response to the said enquiry, Koncar first submitted its
informative Offer No. D-20-03-3 40/1130-2 dated 19.09.1995 Annexure P-1 (Colly)
and revised Offer No. D-20-03-340/1130-3 dated 25.03.1995 Annexure P-1 (Colly). In
both these documents, it was clearly stipulated that the ultimate client for which offer
was invited was the Karikkayam Project. It is the pleaded case of DLF that from the
initial stage i.e. informative offer till the end of communications, between Koncar and
DLF, all the communications have reference that the generators were for Karikkayam
Project. After negotiating, DLF issued letter of intent dated 24.07.1996 (Annexure P-2)
to Koncar. After completion of negotiations and satisfaction of both the parties,
Contract No. 04003-Generator [Karikkayam] dated 04.09.1996 (Annexure P-3)
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(hereinafter referred to as ‘the contract’) was entered into between Koncar and DLF.
The scope of work, supply and services to be rendered by Koncar, were as per the
Annexure -1 appended to the contract. It was further pleaded that perusal of
Annexure-1 to the Contract reveals that Koncar was to carry out important
manufacture/assembly of the generators at Karikkayam site of TECIL, as indicated
below:
(a) Stator segment joints were to be done at site.
(b) the rotor supplied in parts were to be assembled at site.
(c) all site activities were to be carried out under supervision of respondent's
experts.
3. The emphasis of the DLF is that it was well within the knowledge of Koncar that
the generators were for Karikkayam Project to be installed at Karikkayam site. Koncar
was also well aware of the fact that DLF was purchasing the generators for Karikkayam
Project. It was Koncar who was to supervise assembly of the generators at TECIL's
Karikkayam project site. To facilitate the import of generators, DLF also obtained
necessary import licence from the concerned department of the Government of India.
4. The purpose of the contract was the design, engineering, manufacturing and
supply of two generators, type SN 5124-34 with AVR and brushless excitation by
Koncar to be purchased by DLF. As stipulated in the contract and other
correspondence between the parties, the generators were supposed to be installed at
an industrial site in the State of Kerala in India, referred to as the Karikkayam site or
the Karikkayam project. The total FOB purchase price of the two generators was DEM
1,898,000. Ten percent of the purchase price was supposed to be paid soon after the
signing of the contract as an advance payment 20 days after the receipt of a bank
guarantee provided by Koncar's bank. Ninety percent of the purchase price was to be
covered through an irrevocable documentary letter of credit provided by DLF's bank in
favour of Koncar. As per article 3 of the contract, the first generator was supposed to
be delivered within 12 months from the date of the signing of the contract provided
that advance payment was made and letter of credit was provided in compliance with
article 4 of the contract. The second generator was supposed to be delivered one
month after the delivery of the first generator. However, the manufacture of the
generators was significantly delayed. This delay became the subject of a lengthy
correspondence between the parties. Taking into account the reasons and duration of
these delays, the parties agreed to amend the contract. The first amendment to the
contract was formalized in a private deed between the parties signed on 11.05.1998.
It put an end to a two-year discussion that had been ongoing between the parties. In
the course of these two years, two meetings dated 10.07.1997 and 11.08.1997 were
held at Koncar premises, in Zagreb,. during which the parties agreed that the original
design of the generators had to be modified due to new turbine input data
Page: 841
developed by the CKD Blansko, a company with which DLF had entered into another
contract for the supply of the turbines on which the generators were to be assembled
at site. In the first amendment, the parties agreed on:
(i) the redesigning of the generators by Koncar;

(ii) an increase of the total FOB contract price from DEM 1, 898,000 to DEM
2,062,000;
(iii) a new delivery period for the first and second generators of 10 and 11 months
from 15 May 1998, “provided that the Letter of Credit has been properly
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established within 30 days from the date of signing of this Amendment of the
Contract”;
(iv) a change in the terms of payment taking into account the price increase.
5. Furthermore, a second amendment to the contract was formalized in the minutes
of a meeting held from 23 to 25 February 1999 between Koncar and DLF in Zagreb,
when the parties agreed to extend the delivery period of both generators to 30
September, 1999. In addition, the parties agreed to modify and extend the letter of
credit for the payment of the outstanding purchase price to 21.10.1999. Regarding the
inspection and testing of the generators prior to the shipment, as provided for in
article 12 of the contract, the parties agreed that Koncar should give 30 days notice
before the tests to DLF to enable it to send its inspectors. After the second
amendment, the manufacture of the generators was finally achieved by Koncar.
Between June and August, 1999, Koncar sent faxes to DLF informing it that the
generators would be ready for inspection in mid-August and asked DLF to take
appropriate action to prepare the mission of its inspectors in Zagreb. DLF
representatives did not attend Koncar's premises nor answered Koncar's invitations to
inspect the generators. In the absence of DLF, Koncar itself proceeded with the
inspections and tests of the generators.
6. Furthermore, in a letter dated 30.08.1999, DLF informed Koncar that its own
customer, a company named TECIL wanted to carry out the inspection along with
DLF's Inspectors, but that due to lock-out in TECIL's premises, it was not possible to
organize the inspection. DLF claimed that it was a force majeure situation and
consequently Koncar should stop its contractual activities and put off the delivery of
the generators until the force majeure situation resolve. The same day, ABN-AMRO,
who had issued the letter of credit on behalf of DLF informed Koncar's bank
(Zagrebacka Banka) that the letter of credit had been amended on the request of DLF.
The amendment included new documentary evidence to trigger the payment,
consisting of a certificate issued by DLF inspectors witnessing the testing and
inspection of the generators, and full set of clean on board ocean bill of lading issued
by the freight forwarder Dacotrans grassport. Koncar answered that as TECIL was not a
party to the contract, its situation was of no concern and that as a result, force
majeure did not apply. Koncar asked for an extension of the expiry date of the letter of
credit and of the date of shipment. However, on the other hand, DLF claimed that as
TECIL was the ultimate buyer of the generators and owner of the Karikkayam site, and
as Koncar was perfectly aware of the existence of TECIL, the lockout situation had to
be taken into account for the purpose of performing the contract. DLF confirmed that
the lock-out at Karikkayam site was a force majeure situation. There could not be any
inspection nor shipping up until said situation resolve. Finally, in a letter dated
09.09.1999, DLF questioned Koncar's ability to meet its contractual obligations. On
30.09.1999, the latest possible date for the shipment, the generators had still not
been inspected by DLF inspectors nor any of its representatives. Koncar was thus
unable to deliver the generators and, on 21.10.1999, the letter of credit expired.
7. The parties exchanged numerous correspondence. However, as DLF did not
consider sending inspectors other than TECIL's representatives and as the lock-out at
TECIL's premises continued, the situation was never resolved. In a letter dated
20.12.2000, DLF informed Zagrebacka Banka that it had merged with DLF Universal
Ltd. and consequently all liabilities, responsibilities and receivables with regard to the
contract had been transferred to DLF Universal Ltd. In the letter dated 14.09.2001,
DLF Power Ltd. informed Zagrebacka Banka that it had taken over DLF Universal Ltd.'s
Energy System Division including the contract and asked for Zagrebacka Banka to
amend the bank guarantee in order to extend it in favour of DLF Power Ltd. Further
facts are to the effect that in a FAX dated 10.10.2001, Koncar refused to acknowledge
the transfer of the contract to DLF Universal Ltd. and DLF Power Ltd. on the ground
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that the contract could only have been transferred if the parties had signed a new
Page: 842
amendment which would have express acknowledged the amalgamation of DLF

Industries Ltd. and DLF Universal Ltd. in the same way that the first amendment had
expressly acknowledged the succession between Koncar Generators and Koncar
Generators and Motors. In July, 2002, Koncar instructed an Indian lawyer, Mr. Sunil
Kumar Aggarwal, to invite DLF Industries Ltd., DLF Universal Ltd. and DLF Power Ltd.
to negotiate and resolve the issues concerning the contract. A Koncar representative
went to New Delhi to attend these negotiations but none of the DLF group companies
attended the meeting organized on 11.07.2002.
8. Finally on the ground of article 11 of the con tract, Koncar decided to initiate
proceedings be fore the International Court of Arbitration of the ICC against DLF
Universal Ltd. and DLF Power Ltd. Article 11 of the contract reads as under:
“All disputes arising out of/relating to under or in connection with this agreement
between the parties, the parties shall endeavour to settle the issue mutually and
amicably. If mutual settlement fails, then the dispute shall be settled by arbitration
in accordance with the rules of arbitration of the International Chamber of
Commerce Paris by a board of three arbitrators comprising one nominee each of the
purchaser and the supplier and the third to be appointed by the International
Chamber of Commerce Paris, in accordance with its rules. The venue of arbitration
proceedings shall be Paris. Proceedings shall be conducted in English language and
Swiss Federal Code obligation will be applied. Arbitration award made in such
arbitration proceedings shall be final and binding on both parties. During the course
of arbitration proceedings, the parties hereto shall continue to execute their
respective obligations in respect of such matters as are referred to arbitration.”
9. On 29.07.2002, with reference to above article, Koncar-claimant filed a request
for arbitration with the International Court of Arbitration and Prof. Dr. Jaksa Barbie was
nominated as arbitrator. On the same day, the Secretariat of the International Court of
Arbitration of the ICC notified the request for arbitration to DLF. On 22.10.2002, DLF
sent reply to the request to Koncar and the Secretariat of the ICC. It was pleaded by
DLF that they did not have privity of contract with Koncar and there was no arbitration
agreement between them. The Court decided, on its session dated 29.11.2002, in
accordance with Article 6.2 of the ICC Rules that the arbitration should proceed and
that the Arbitral Tribunal would have to decide of its jurisdiction over the case. On
29.11.2002, the ICC International Court of the Arbitration confirmed Prof. Dr. Jaksa
Barbie and Justice N.C. Jain as co-arbitrators. On 19.12.2002, the Court appointed
Prof. Christian Larroumet as Chairman of the Arbitral Tribunal upon the proposal of the
French National Committee. On 20.12.2002, the Secretariat of the ICC transmitted the
file to the Arbitral Tribunal. During its session held on 07.05.2003, the Court accepted
the resignation of Justice N.C. Jain and confirmed Justice K. Ramamoorthy as
arbitrator in replacement of Justice N.C. Jain, upon joint nomination of the parties.
Ultimately, terms of the reference were finally signed by the parties and arbitrators on
16.07.2003. In compliance with the terms of reference, the Arbitral Tribunal had to
answer the following questions to resolve the dispute between the parties:
* whether a contractual relationship between the parties in accordance with the
contract exists.
* whether DLF Industries Ltd. with which the respondent had entered into the
contract on 04.09.1996, was dissolved. If so, to what effect?
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* whether the contract or the arbitration clause was devolved to the DLF Universal
Ltd. on merger under the scheme of amalgamation approved by Delhi High Court
on 08.08.2000.
* whether there was any assignment to DLF Power Ltd. of the contract entered into
the Koncar Generators and Motors Ltd. and DLF Industries Ltd. or of the
arbitration clause.
* whether DLF Industries Ltd. advised the Koncar Generators and Motors Ltd. to put
a hold on the supplies of the goods in August 1999 and whether the contract had
got frustrated on account of a force majeure condition prevailing at the
Karikkayam Project site because of lock out in Karikkayam Project site which was
specified in the contract and whether the force majeure condition at Project site
prevented DLF Industries Ltd. from performing its obligations under the contract.
Page: 843
* whether Koncar Generators and Motors Ltd. performed its obligations under the
contract on time or was it ready to perform them.
* whether it is possible to grant the Koncar Generators and Motors Ltd. specific
performance of the contract against DLF Industries.
* whether DLF Industries Ltd. or the petitioners prevented Koncar Generators and
Motors Ltd. from performing its obligations.
* whether a force majeure condition prevented the Koncar Generators and Motors
Ltd. and the petitioners from performing their obligations under the contract.
* how long did the force majeure condition continue and whether the contract was
frustrated?
* whether any of the petitioners is liable to lift the equipments and pay the amount
of 960, 308.41 Euros with interest from 31 October, 1999 until the date of the
payment of the principal.
10. A procedural timetable was adopted by the parties and arbitrators at the same
time. The terms of reference and procedural timetable were transmitted to the Court
at its session on 22.08.2003. On 27.01.2004, the Secretariat informed the Arbitral
Tribunal that pursuant to Article 24(2) of the Rules of Arbitration (in short ‘Rules’), the
court extended the time limit for rendering the Award until 30.04.2004. Thereafter,
time was further extended upto 31.07.2004. Koncar filed the claim and DLF also filed
the reply to the claim, additional reply etc. The claim of the parties as mentioned in
para 3 of the Award were as under:
“3. Claims of the Claimant and of the Respondents
3.1 Claims of the Claimant
The Claimant asserts that it is ready to perform its contractual obligations,
i.e. the delivery of the goods, after the inspection is performed by the
respondents in Croatia. The Claimant asks the Arbitral Tribunal to call the
respondents to perform their obligations under the Contract, i.e. to pay jointly
and severally the amount of Euros 960, 308.41 with interest at the amount of
5% p. a in accordance with article 104, in connection with article 102-1 of the
Swiss Code of Obligations, starting on 31 October 1999 until the final
repayment.
The claimant also asks for indemnification as compensation for its costs
relating to the storage and maintenance of the generators and their
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accessories from 30 September 1999 until 31 December 2003.
The Claimant also asks the Arbitral Tribunal to decide that the respondents
bear the arbitration expenses.
3.2 Claims of the Respondents
The respondents dispute the jurisdiction of the Arbitral Tribunal alleging that
there is no privity of contract between them and the claimant.
The respondents ask the Arbitral Tribunal to decide that the Claimant did not
perform its obligations.
The respondents ask the Arbitral Tribunal to adjust the advance payment of
189.800 DM made by DLF Industries Ltd. to the claimant.
They also ask the Arbitral Tribunal to dismiss Koncar's claim for indemnification.”
11. On the issue of existence of a privity of contract between the parties, the
Arbitral Tribunal recorded following findings in para 4.1:
“It must therefore be ruled that due to the transfer of the Energy System
Division, DLF Power has been transferred DLF Universal Ltd.'s rights and obligations
under the contract and its amendments, and, as a consequence, privity of contract
exists between DLF Power Ltd. and the claimant.
In its request for arbitration and its subsequent memoranda, as well as in the
terms of reference, the claimant has not only made claims against DLF Power Ltd.
but also against DLF Universal Ltd.
It must be emphasized that, although they could have debated this particular
issue, the respondents decided to ignore the question of possible joint and several
liability under the contract between the transferor company and the transferee
company in the context of a transfer of branch of activity.
As the respondents did not raise any argument against possible joint and several
liability under the contract the Arbitral Tribunal considers Claimant's argument
undisputed. It
Page: 844
must therefore be ruled that there is privity of contract both in the relation between
the Claimant and Respondent No. 2 and also between the Claimant and Respondent
No. 1.
This privity of contract necessarily includes the arbitration clause provided in

article 11 of the Contract. As a consequence the arbitration proceedings are
maintainable between the claimant and the Respondents.
Article 11 of the Contract provides that prior to initiating the arbitration the
parties should endeavour to settle their dispute amicably. It is clear from the
documents provided by the Claimant, and, notably, the minutes of the meeting
held on 11 July 2002, that the Claimant tried to obtain an amicable solution by
travelling to India and requesting a meeting with the Respondents. The latter
decided to refuse this proposal of negotiation. As a consequence, the Arbitral
Tribunal considers that the conditions of Article 11 of the Contract have been
properly implemented and that the arbitration is not premature.”
12. On the issue of performance of the contract by the parties the Arbitral Tribunal
recorded the following findings in para 4.2.:
“It must therefore be ruled that the Claimant has indeed fulfilled its obligations
to the best of its ability and that, on the contrary, DLF Industries Ltd. has not
performed its obligations under the contract, as firstly, it did not take any action to
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arrange for the delivery of the goods and as, secondly, it unilaterally amended the
Letter of Credit to prevent delivery of the goods while not sending inspectors to
witness the inspections and testing.
Therefore, the Respondents' claim to obtain adjustment of the advance payment
of 189.800 DM made by DLF Industries Ltd. to the Claimant, is rejected. Koncar's
claim for specific performance of the Contract will be decided in paragraph 4.4 here
below.”
13. On the issue of existence of force majeure, the Arbitral Tribunal recorded the
following findings in para 4.3:
“It must therefore be ruled that neither the lockout situation at Tecil's nor,
further, on the circumstance that Tecil became a sick company under the Sick
Industrial Companies (S.P.) Act 1985, nor the expiry of the import licence
constitute force majeure. As a consequence, the fact that DLF Industries Ltd. had
indeed advised the Claimant to “put a hold” to the manufacture of the good is
totally irrelevant as there was no force majeure and thus DLF Industries Ltd. did not
have the right to suspend the performance of the Contract.
The Respondent's submission in that regard must be rejected.”
14. On the issue of specific performance, the Arbitral Tribunal recorded the
following finding in para 4.4:
“It must therefore be ruled that specific performance of the delivery is possible
and that the Respondents shall be condemned to arrange for and take delivery of
the generators; Respondents No. 1 and No. 2 shall also be sentenced, jointly and
severally, without delay and regardless of the time to arrange for and take delivery
of the generators, and to pay the outstanding amount of the purchase price, that is
Euros 960,308.41. Respondents No. 1 and No. 2 shall finally be sentenced jointly
and severally to pay interest on said amount at the legal rate provided in article 104
of the Swiss Federal Code of Obligations of 5% per year starting from 31 October
1999, until the final repayment.”
15. On the issue of claims for indemnification, the Arbitral Tribunal recorded the
findings in para 4.5 which read as under:
“It must therefore be ruled that the claim for indemnification of the storing and
maintenance costs does not constitute a new claim; that the Claimant had the right
to file new documents relating to its indemnifications claims as long as the Arbitral
Tribunal had not decided to close the debates between the parties; that the
Respondents shall jointly and severally indemnify the Claimant and pay the amount
of Euros 18,411.40; that the Respondents shall also jointly and severally bear the
costs of the arbitration expenses; that the Respondents shall finally be sentenced
jointly and severally to pay interest on the indemnification at the legal rate provided
in article 104 of the Swiss Federal Code of Obligations at 5% per year starting from
the date of the present Arbitration Award.”
Ultimately, the Arbitral Tribunal recorded the
Page: 845
following findings in para No. 5:
“ACCORDINGLY, THE ARBITRAL TRIBUNAL:

rules that there is privity of contract between the Claimant and the
Respondents No. 1 and No. 2; and that therefore the Arbitral Tribunal has
jurisdiction over the case;
- rules that the Claimant has fulfilled its obligations to the best of its
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ability, and if the goods have not been delivered yet the reason lies in
the fact that DLF Industries Ltd. and, subsequently, Respondents No. 1
and No. 2 have not performed their own obligation under the Contract;
- acknowledges formally that the Claimant is ready to deliver the goods;
- rules that there is no further need to inspect the goods;
- rules that Respondents No. 1 and No. 2 have to perform their obligations
to take delivery of the goods;
- rules that Respondents No. 1 and No. 2 shall jointly and severally pay the
amount of Euros 960, 308.41 with interest at 5% per year starting on 31
October 1999 until the final repayment;
- rules that Respondents No. 1 and No. 2 shall jointly and severally pay to
the Claimant the amount of Euros 18,411.40 for the storage and
maintenance of the goods with interest at 5% per year starting from the
date of the Award;
- rules, in accordance with article 31 of the ICC Rules, that Respondents
No. 1 and No. 2 shall jointly and severally bear the costs of the
arbitration i.e. Euros 5, 545.40 relating to the lawyer expenses of the
Claimant, Euros 99,482.70 relating to the arbitration fees paid to the
ICC, Euros 3,389.57 of guaranty expenses relating to the repayment of
Respondents No. 1 and No. 2's arbitration fee to the ICC, Euros 6,852
relating to the arbitrations costs in Paris, all these amounts with interest
at 5% per year from the date of the Award;
- rejects all further claims or requests.”
16. The said foreign arbitral award attained finality. Thereafter, Koncar filed
application for enforcement and execution of the foreign arbitral award under Section
47 of the Arbitration and Conciliation Act, 1996 (in short, ‘the 1996 Act’). Upon notice,
DLF filed objections and sought rejection of the foreign award on the ground that
application has been filed under Section 47 which does not provide for enforcement of
foreign award; enforcement is only under Section 49. It was also pleaded by DLF that
the award be rejected for non-compliance of Section 47(2)(c). It was also pleaded by
DLF that Koncar did not lead any evidence to prove that the award in question is a
foreign award within the meaning of Part-II of the Act of 1996. It was also pleaded
that to qualify as a New York Convention award under Section 44, the conditions
stipulated in Section 44 must be satisfied including the existence of an agreement in
writing between the parties expressly making the New York Convention applicable to
these proceedings. Since there was no written agreement between the parties that the
arbitration would be governed by the New York Convention on the recognition and
enforcement of foreign arbitral awards, the same cannot be enforced. Various other
objections were raised including the privity of contract, force majeure and non-
compliance of provisions of Specific Relief Act. It was also pleaded that the award is
opposed to the public policy of India and also contrary to the guidelines of Reserve
Bank of India. Since the import licence has been cancelled, the Arbitrator cannot over-
step the terms of the reference and such an error has led to incalculable injustice.
17. DLF filed application before the enforcing court that award cannot be enforced
as it is contrary to the provisions of Sections 33, 35, 40 and 42 read with Article 12 of
Schedule I of the Indian Stamp Act, 1899 and prayed for impounding of the award.
The respondent made good the deficiency of stamp paper over the award with penalty.
The said application of DLF was dismissed vide order dated 23.02.2008 (Annexure P-
18). The petitioners-DLF also filed petition under Section 34 of the 1996 Act
challenging the award dated 12.05.2014 as rendered by the Arbitral Tribunal. The said
petition was dismissed by learned Additional District Judge, Gurgaon vide order dated
28.04.2010. The petitioners filed FAO No. 5957 of 2010 against the said order which
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was dismissed as withdrawn vide older dated 15.10.2010 of a Coordinate Bench of this
Court and following order was passed:
“After arguing for some time learned counsel have reached a consensus on the
present appeal.
Page: 846
It has been agreed by learned counsel for the appellants that the appeal as well as the
application under Section 34 of the Arbitration and Conciliation Act, 1996 would be
dismissed as withdrawn. It has been further agreed that the appellants would deposit
an amount of Rs. 7.5 Crores before the Executing Court on or before 08.11.2010.
It has been agreed by learned counsel for the respondent that the application
under Section 48 which has been filed by the appellants would be decided on its
own merits without being influenced by any findings or observations in the order on
the application under Section 34 dated 28.04.2010. It has further been agreed by
learned counsel for the respondent that the amount of Rs. 7.5 Crores which would
be deposited by the appellants would be released to it only consequent to
furnishing a bank guarantee of a scheduled bank of India in the amount of Rs. 7.5
Crores in favour of the Executing Court and the said bank guarantee would be kept
alive during the proceedings under Section 48 and for a period of 60 days
thereafter. The final order thereon would obviously be passed by the Executing
Court after the conclusion of the proceedings under Section 48.
Appeal stands disposed of accordingly.”
18. Vide impugned order, learned Additional District Judge, Gurgaon dismissed the
objections and recorded the following findings:
“10. From appraisal of record in light of aforesaid rival contentions, it is amply
clear that agreement/contract was entered into between decree holder and
respondents on 4.9.1996. No reference to TECIL was ever made in the agreement.
So arguments regarding the award being violative of provisions of Section 56 of
Indian Contract Act and force majeure are untenable. The argument of inadequate
opportunity of being heard before Arbitrator is untenable because respondents had
participated in Arbitration proceedings. Arbitral award deals with privity of contract,
fulfillment of obligations by decree holder and default by JDs, force majeure etc.
The award can not be said to be perverse. So, the arguments of learned counsel for
respondents/objectors are devoid of merits. The ratio of judgments referred by
learned counsel for respondents are not in doubt. As such their critical analysis is
not called for. In view of above material facts the ratio of judgments do not help the
case of respondents/JDs. Accordingly, objections dated 18.2.2006 of respondents
are dismissed.”
19. The petitioner had raised every possible technical objection and approached this
Court many times. Now feeling aggrieved against the impugned order, DLF has
preferred the instant revision.
20. At the time of admission of instant revision, a coordinate Bench of this Court
passed the following order:
“Prayer in the revision petition under Article 227 of the Constitution is for setting
aside the order dated 2.4.2011 (P-19) passed by the learned Additional District
Judge, Gurgaon, whereby objections filed by the petitioners under Section 48 of the
Arbitration & Conciliation Act, 1996 (for short “1996 Act”) seeking dismissal of the
application for enforcement and execution of the foreign award dated 12.5.2004
under Section 47 of 1996 Act, have been dismissed.
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Learned counsel for the petitioners, inter alia, submits that it is established on
record that the contract between the parties was for supply and installation of
specified Generators for the Karikkayam Hydro Electric Project and on the
abandonment of the Project, the contract stood frustrated in view of the provisions
of Section 56 of the Indian Contract Act, 1872, and thus the arbitral award
providing for specific performance with maintenance and demurrage charges being
illegal and opposed to public policy of India, cannot be held to be executable, for
which compensation in money would be the appropriate and adequate relief, if any
for the sake of arguments, in view of Section 14(1)(a) of the Specific Relief Act,
1973.
It was next contended that the import licence for the Generators in questions
having elapsed due to delay in manufacture/supply/installation caused by the
respondent-Company (on one pretext or the other), the enforceability of the award
would be against the public policy of India being in violation of the statutory laws of
the country. It was further contended, by referring to the pleadings, that the
learned Additional District Judge has without considering serious legal objections
Page: 847
taken by the petitioners passed a cryptic and non-speaking impugned order dated
2.4.2011 (P-19), thus rendering the same to be set aside.
Learned counsel for the respondent does not seriously dispute that debatable
issues requiring thorough consideration are involved in the present revision petition,
however, he has laid stress on the plea that after passing of the order dated
2.4.2011, the award having become a ‘decree’ and that too a money decree, the
interest of the respondent-Company be secured by directing the petitioner-
Company to make deposits in Euro Currency since the payment under the
agreement was envisaged in Euro Currency.
Counsel for the parties heard at length.
The prayer for deposit in Euro Currency is un-tenable as admittedly on a previous
occasion, the parties had themselves agreed for a deposit of Rs. 7.5 crores before
the Executing Court to secure their interests and, therefore, I find no compelling
reason to deviate from such an arrangement.
Serious debatable issues are involved, which require detailed consideration.
Admitted. To be listed for hearing within three months.
The operation of the impugned order dated 2.4.2011 (P. 19) is stayed subject to
the petitioners depositing another sum of Rs. 50 lacs within four weeks from the
receipt of certified copy of this order, in addition to Rs. 7.5 crores deposited earlier
with the Executing Court. The Executing Court on such compliance shall deposit the
total amount in a fixed deposit receipt in a Nationalized Bank under a scheme
fetching a maximum rate of interest. The aforesaid amount shall be disbursed to
the successful party on the final adjudication of the lis.”
21. I have heard learned senior counsel for the parties and with their assistance
perused the record.
22. Learned senior counsel for the petitioners-DLF contended that impugned order
passed by learned Additional District Judge, Gurgaon is totally illegal, wrong, non-
speaking, cryptic, hence, liable to be set aside. Learned senior counsel contended that
learned Additional District Judge has not given any reasoned finding for rejecting the
objections filed by the petitioners. Actually, there is no finding in the impugned order
dated 02.04.2011. It is well established principle of law that the Court whether in
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normal proceedings or otherwise is required to deal with each and every contention
and the impugned order suffers from lack of reasoning, whatsoever which is evident
from the bare perusal of para 10 of the impugned order. Learned senior counsel further
contended that no opportunity of hearing was given and impugned order being non-
speaking one is liable to be set aside. In support of his contentions, learned senior
counsel relied upon Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC
234, Amrik Singh v. Vardhan Properties and Investment Ltd., 2006 (4) R.C.R. (Civil)
521 and B.P. Rice Mills v. PUNSUP, 2008 (3) R.C.R. (Civil) 749. Learned senior counsel
further contended that provisions for challenging foreign award are contained in Part II
under the 1996 Act. Learned counsel further contended that Sections 34(2) and 48(2)
(b) of the 1996 Act clearly envisage that if the award is in conflict with the “public
policy” of India and is affected by fraud or corruption or in violation of Section 75 or
Section 81 of the 1996 Act, then it is illegal, unsustainable and cannot be enforced. In
support of his contentions, learned counsel relied upon Oil & Natural Gas Corporation
Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 and Phul-chand Exports Limited v. O.O.O.
Patriot, (2011) 10 SCC 300. Learned senior counsel further contended that, foreign
award has to comply with the provisions contained in sub-sections (a) & (b) of Section
44 of the 1996 Act. The agreement is between an Indian Company and Croatian
Company. The award will be a foreign award if the agreement for arbitration applies to
the convention set forth in first schedule or to such territories where reciprocal
provisions have been made in the official gazette. Koncar was required to annex
documents which are necessary to prove that such award is a foreign award. Learned
senior counsel further contended that the agreement had been executed and agreed to
be performed in India and Swiss Federal Code of Obligations has been wrongly
applied. The award fails to deal with the relevant rules, when the petitioners had
raised the issue of force majeure and withdrawal of import permission. Since the Swiss
Federal Code of Obligations has been erroneously applied, the arbitral award is not
sustainable. In support of his contentions, learned senior counsel
Page: 848
relied upon National Thermal Power Corporation v. Singer Company, (1992) 3 SCC 551
and Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2001) 6 SCC 356. Learned senior
counsel further contended that contract of movable property on account of breach
cannot be specifically enforced in view of Sections 10 and 14 of the Specific Relief Act.
Reliance was placed upon American President Lines v. Punjab Con. Steels Ltd., 1997
(3) RCR (C) 514, Tej Singh v. State of U.P., AIR 1981 Allahabad (D.B.) 103, Hem Raj
Kapoor v. Seventeen Textile Traders (India), AIR 1961 Patna DB 318, GMNCO Ltd. v.
Ravi Gupta, AIR 2001 Delhi (D.B.) 409, Indian Oil Corporation v. Amritsar Gas Service,
(1991) 1 SCC 533, Jaipir Metals v. Jain Industries, 1994 (1) RRR 754 and Cogent
Silver Fibre Pvt. Ltd. v. Noble Fibre Technologies Inc., AIR 2006 Delhi 292. Learned
senior counsel further contended that the award stands frustrated in view of Section
56 of the Contract Act. The award is against the terms and conditions of the contract
vis-a-vis force majeure clause. In support of his contentions, learned senior counsel
relied upon Boothalinga Agencies v. V.T.C. Poriaswami Nadar, AIR 1969 SC 110, Smt.
Sharda Mahajan v. Maple Leaf Trading International (P) Ltd., 2007 (78) SCL 367 Delhi,
Industrial Finance Corp. Ltd. v. Cannanore Spinning and Weaving Mills Ltd., (2002) 5
SCC 54 and Dhanrajamal Gobindram v. Shamji Kalidas & Co., AIR 1961 SC 1285.
Learned senior counsel further contended that award is against the Foreign Trade
Regulations Rules, 1993 and relied upon Renu Sagar Power Co. Ltd. v. General Electric
Co., 1994 Supp (1) SCC 644 : AIR 1994 SC 860. Learned senior counsel further
contended that there is no privity of contract between the parties and contended that
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the impugned order be set aside.
23. Per contra, learned senior counsel for respondent-Koncar vehemently opposed
the contentions of learned counsel for petitioners- DLF and contended that there is
privity of contract, all the issues raised in this petition have been decided by the
Arbitral Tribunal. DLF never challenged the foreign award and the same has attained
finality. The plea of petitioners that they were purchasing the generators for and on
behalf of TECIL and since there is alleged lock out at the premises of the TECIL,
therefore, in view of force majeure clause, the contract stands frustrated and as such
cannot be specifically enforced, is not sustainable. The contract was between the
Koncar & DLF, TECIL has no concern with the same in any manner. Perusal of the
contract as well minutes of meetings between the parties make it clear that it is not
the case of the petitioners that they were purchasing the generators in question for
and on behalf of TECIL. Learned senior counsel further contended that supply of
generators by the petitioners to the TECIL, if any, is an internal arrangement between
the DLF & TECIL. Respondent-Koncar being alien to any such contract or
understanding cannot be fastened with any liability to its detriment. Learned senior
counsel further contended that Section 14 of the Specific Relief Act cannot be read in
isolation to Section 10 of the Specific Relief Act. Section 14 of the Specific Relief Act is
to be read in conjunction with Section 10 of the Specific Relief Act. Perusal of Section
10 particularly explanation (ii) (a) makes it clear that contract in present case between
the parties is specifically enforceable as the generators in question being subject
matter of the contract, are not an ordinary article of commerce and have been tailor
made to suit the requirements and specifications of the petitioners only. This fact
holds all the more significance in view of the pleadings of the petitioners in para 32
(u) of the instant petition and reference was made to Kulwant Singh v. Makhan Singh,
2003 (1) RCR (Civil) 433. Learned senior counsel further contended that the award in
question satisfies all the ingredients of a foreign award as defined in Section 44 of the
1996 Act. Reference was made to article No. 11.0 of the contract to contend that
dispute shall be settled by arbitration in accordance with the rules of Arbitration of
ICC, Paris by a Board of three arbitrators comprising one nominee each of DLF
purchaser and Koncar-supplier and the third to be appointed by ICC, Paris. The venue
of arbitration proceedings shall be Paris. The proceedings shall be conducted in English
language and Swiss Federal Code of Obligations will be applied. It was also contended
that it was one of the terms that arbitration award made in such arbitration
proceedings shall be final and binding on both the parties. It was specifically
contended that upon notice, although objections were raised by the petitioners, but
subsequently they accepted the verdict of the International Court of Arbitration and
signed the same. Issues were specifically framed by the Arbitrators and signed by the
Arbitrators and parties and as such they are binding on the parties. Once the DLF
petitioners have participated in the
Page: 849
proceedings, they cannot challenge the award on the ground that there is no privity of
contract and the award is against the public policy of India. The Arbitral Award can be
challenged in accordance with law of the country where it is made and has the seat of
arbitration i.e. Paris. Learned senior counsel further contended that award is not
against the Foreign Trade Regulations Rules, 1993 and the same has no concern with
the present dispute. Learned senior counsel further contended that present revision is
not maintainable. The award is a decree of the civil court and can be enforced under
Section 49 of the 1996 Act. The award is not open to challenge in civil revision as the
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decree is not revisable and revision is liable to be dismissed. In support of his
contentions, learned senior counsel relied upon Gables India Pvt Ltd. v. State of
Punjab, 1995 (1) R.R.R. 250, Food Corporation of India v. Joginderpal Mohinderpal,
(1989) 2 SCC 347 and Steel Authority of India Ltd. v. Gupta Brother Steel Tubes Ltd.,
2010 (1) R.C.R. (Civil) 101.
24. I have considered the rival contentions of learned senior counsel for the parties.
25. Before I embark upon the task of interpreting the provisions of the 1996 Act, it
would be appropriate to trace the brief history of the arbitration law in India up to the
passing of the 1996 Act. It needs to be noticed here that I had the occasion to go
through the elaborate judgment of Hon'ble Supreme Court in the case of Bharat
Aluminium Company v. Kaiser Aluminium Technical Services Inc., 2013 (1) R.C.R.
(Civil) 1 : 2012 (5) Recent Apex Judgments (R.A.J.) 293 : (2012) 9 SCC 552 wherein
detailed history of law of arbitration in India has been traced out, therefore, I am not
giving an elaborate background of history of arbitration, however, a brief reference
would suffice. In view of world's shrinking boundaries, free trade and international
commerce have become global necessities. Increasing competitiveness usually leads
to conflict of commercial transaction disputes inter se parties. The arbitration is used
as a means for speedy dispute resolution. The old law regarding arbitration prior to the
1996 Act was embodied in three enactments i.e. the Arbitration (Protocol and
Convention) Act, 1937, the Indian Arbitration Act, 1940, and the Foreign Award
(Recognition and Enforcement) Act, 1961. The Indian Arbitration Act, 1940 was the
general law governing the arbitration in India specifically with reference to the
domestic arbitration. Both the Arbitration (Protocol and Convention) Act, 1937 and the
Foreign Award (Recognition and Enforcement) Act, 1961 were designated to enforce
the foreign arbital awards. The Foreign Award (Recognition and Enforcement) Act,
1961 implemented the convention on the recognition and enforcement of foreign
arbitral awards. The United Nations Convention on the Recognition and Enforcement of
Foreign Arbitral Awards held meeting on 10.06.1958 known as ‘New York Convention’
to which India became signatory on 13.07.1960. In order to modernize the outdated
Indian Arbitration Act, 1940, the Government enacted a new arbitration Act i.e.
Arbitration and Conciliation Act, 1996. The 1996 Act repealed all the three previous
statutes i.e. the Indian Arbitration Act, 1940, the Arbitration (Protocol and
Convention) Act, 1937 and the Foreign Award (Recognition and Enforcement) Act,
1961.
26. The 1996 Act was enacted with objective of ensuring speedy disposal of cases
as well as to encourage Arbitral Tribunal to get the party to settle the dispute through
the use of mediation and conciliation. The 1996 Act has been divided into four parts.
Part I deals with domestic arbitration. Part II exclusively deals with the enforcement of
certain foreign awards in India, particularly convention awards i.e. awards made in
countries that are signatories to the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, 1958 and the Geneva Convention on the
Execution of Foreign Arbitral Awards, 1927. Part III solely deals with the Conciliation
and Part IV releates to Supplemtnary Provisions. In addition to above, First Schedule
refers to the convention on the recognition and enforcement of foreign arbitral awards,
Second Schedule refers to the protocol on arbitration clauses and Third Schedule refers
to the convention of the execution of foreign arbitral awards.
27. In the present case, I am only making reference to Part II and First Schedule
annexed with it being relevant in this case. It would be apposite that the 1996 Act is
modelled on the United Nations Commission on International Trade Law (in short
‘UNCITRAL’) Model Law and the UN-CITRAL Arbitration Rules with few departures. The
1996 Act is unique in all respects as it applies both to the international and domestic
arbitration unlike the UNCITRAL Model Law which was designed only to apply to the
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international commercial arbitration and secondly it goes beyond
Page: 850
the UNCITRAL Model law in the area of minimizing judicial intervention.
28. Since the present dispute is with regard to international commercial arbitration,
I am dealing with its relevancy under the 1996 Act.
29. Section 2(f) of the 1996 Act reads as under:
“(f) “international commercial arbitration” means an arbitration relating to
disputes arising out of legal relationships, whether contractual or not, considered as
commercial under the law in force in India and where at least one of the parties is:
(i) an individual who is a national of, or habitually resident in, any country other
than India; or
(ii) a body corporate which is incorporated in any country other than India; or
(iii) a company or an association or a body of individuals whose central
management and control is exercised in any country other than India; or
(iv) the Government of a foreign country.”
30. The Hon'ble Supreme Court in R.M. Investment Trading Co. Pvt. Ltd. v. Boeing
Co., (1994) 4 SCC 541 : AIR 1994 SC 1136 considered the term “commercial
relationship” and observed as under:
“While construing the expression “commercial” in Section 2 of the Act it has to
be borne in mind that the “Act is calculated and designed to subserve the cause of
facilitating international trade and promotion thereof by providing for speedy
settlement of disputes arising in such trade through arbitration and any expression
or phrase occurring therein should receive, consistent with its literal and
grammatical sense, a liberal construction.””
31. The Hon'ble Supreme Court further emphasized upon the activity that forms the
structure of commercial relationships by noting that trade and commerce is not mere
traffic in goods, but with modern dimensions coming into play, transportation,
banking, insurance, stock exchange, postal and telegraphic services, energy supply
and communication of information, etc., all form a part of commercial behaviour and
transactions. Applying the same logic, the Hon'ble Supreme Court ruled that a
consultancy service for promotional sale is considered a commercial transaction and
hence any dispute thereunder is of that nature.
32. It is worth mentioning that position of law in India with regard to foreign
arbitral award has been elaborately dealt with in various decisions, however, I am
referring only in brief to a few of them.
33. The Hon'ble Supreme Court in Bhatia International v. Bulk Trading S.A., 2002
(2) R.C.R. (Civil) 474 : (2002) 4 SCC 105 interpreted the scope of Part I of the 1996
Act to apply to arbitration held outside India and in turn applied Section 9 of the 1996
Act in support of arbitration seated outside India. The Hon'ble Supreme Court held
that where such arbitration is held in India, the provisions of Part I would compulsorily
apply. In cases of international commercial arbitration held outside India, the
provisions of Part I would apply unless the parties by agreement, express or implied,
excluded all or any of its provisions. In that case, the laws or rules chosen by the
parties would prevail. Any provision of Part I specifically excluded will not apply.
34. After Bhatia International's case (supra), the Hon'ble Supreme Court went a
step further in Venture Global Engineering v. Satyam Computer Services, 2008 (2)
R.C.R. (Civil) 12 : (2008) 4 SCC 190 : AIR 2008 SC 1061 and held as under:
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“The provisions of Part 1 of the Act would apply to all arbitration including
international commercial arbitration and where such arbitration are held in India,
the provisions of Part I would be compulsorily applied to the extent permitted by
the provisions of Part I. It is also clear that even in the case of international
commercial arbitration held out of India provisions of Part I would apply unless the
parties by agreement, express or implied, exclude all or any of its provisions. We
are also of the view that such an interpretation does not lead to any conflict
between any of the provisions of the Act and there is no lacuna as such.”
35. After the above decisions, recently decisions have been rendered by the Hon'ble
Supreme Court which deal with the enforcement of foreign arbitral awards and
challenge to them on the ground of public policy and patent illegality. The Hon'ble
Supreme Court in Bharat Aluminium Company's case (supra) has elaborately dealt
with the arbitration aspects in the international scenario in paras 35 to 38 and the
aspects of scheme of the 1996 Act in paras 42 to 62 and overruled the decisions given
in Bhatia International's
Page: 851
case (supra) and Venture Global Engineering's case (supra) and held that Part I of
1996 Act is independent and is only applicable to the domestic arbitration and Part II
is applicable only to the international arbitration.
36. It would be apposite to reproduce paras 89, 113, 114, 119 and 131 to 154 of
Bharat Aluminium Company's case (supra) for ready reference:
“89. That Part I and Part II are exclusive of each other is evident also from the
definitions section in Part I and Part II. Definitions contained in Section 2(i)(a) to
(h) are limited to Part I. The opening line which provides “In this part, unless the
context otherwise requires…….”, makes this perfectly clear. Similarly, Section 44
gives the definition of a foreign award for the purposes of Part II (Enforcement of
Certain Foreign Awards); Chapter I (New York Convention Awards). Further, Section
53 gives the interpretation of a foreign award for the purposes of Part II
(Enforcement of Certain Foreign Awards); Chapter II (Geneva Convention Awards).
From the aforesaid, the intention of the Parliament is clear that there shall be no
overlapping between Part I and Part II of the Arbitration Act, 1996. The two parts
are mutually exclusive of each other. To accept the submissions made by the
learned counsel for the appellants would be to convert the “foreign award” which
falls within Section 44, into a domestic award by virtue of the provisions contained
under Section 2(7) even if the arbitration takes place outside India or is a foreign
seated arbitration, if the law governing the arbitration agreement is by choice of the
parties stated to be the Arbitration Act, 1996. This, in our opinion, was not the
intention of the Parliament. The territoriality principle of the Arbitration Act, 1996,
precludes Part I from being applicable to a foreign seated arbitration, even if the
agreement purports to provide that the Arbitration proceedings will be governed by
the Arbitration Act, 1996.”
“113. Again in Union of India v. McDonnell Douglas Corp. (supra), the proposition
laid down in Naviera Amazonica Peruana S.A. (supra) was reiterated. In this case,
the agreement provided that:—
“The arbitration shall be conducted in accordance with the procedure provided
in the Indian Arbitration Act of 1940 or any reenactment or modification thereof.
The arbitration shall be conducted in the English language. The award of the
Arbitrators shall be made by majority decision and shall be final and binding on
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the Parties hereto. The seat of the arbitration proceedings shall be London,
United Kingdom.”
Construing the aforesaid clause, the Court held as follows:—
“On the contrary, for the reasons given, it seems to me that by their
agreement the parties have chosen English law as the law to govern their
arbitration proceedings, while contractually importing from the Indian Act those
provisions of that Act which are concerned with the internal conduct of their
arbitration and which are not inconsistent with the choice of English arbitral
procedural law.”
“114. The same question was again considered by the High Court of Justice,
Queen's Bench Division, Commercial Court (England) in Sulamerica CIA Nacional de
Seguros SA v. Enesa Engenharia SA - Enesa. The Court noticed that the issue in
this ease depends upon the weight to be given to the provision in Condition 12 of
the Insurance policy that “the seat of the arbitration shall be London, England.” It
was observed that this necessarily carried with it the English Court's supervisory
jurisdiction over the arbitration process. It was observed that “this follows from the
express terms of the Arbitration Act, 1996 and, in particular, the provisions of
Section 2 which provide that Part I of the Arbitration Act, 1996 applies where the
seat of the arbitration is in England and Wales or Northern Ireland. This
immediately establishes a strong connection between the arbitration agreement
itself and the law of England. It is for this reason that recent authorities have laid
stress upon the locations of the seat of the arbitration as an important factor in
determining the proper law of the arbitration agreement.” The court thereafter
makes a reference to the observations made in the case of C. v. D by the High Court
as well as the Court of Appeal. In Paragraph 12, the observations made have
particular relevance which are as under:
Page: 852
“In the Court of Appeal, Longmore LJ, with whom the other two Lord Justices
agreed, decided (again obiter) that, where there was no express choice of law for
the arbitration agreement, the law with which that agreement had its closest and
most real connection was more likely to be the law of the seat of arbitration than
the law of the underlying contract. He referred to Mustill J. (as he then was) in
Black Clawsen International Limited v. Papierwerke Waldhof-Aschaffenburg AG,
[1981] 2 LLR 446 as saying that it would be a rare case in which the law of the
arbitration agreement was not the same as the law of the place or seat of the
arbitration. Longmore LJ also referred to the speech of Lord Mustill (as he had then
become) in Chanel Tunnel Group Limited v. Balfour Beatty Construction Limited,
[1993] 1 LLR 291 and concluded that the Law Lord was saying that, although it was
exceptional for the proper law of the underlying contract to be different from the
proper law of the arbitration agreement, it was less exceptional (or more common)
for the proper law of that underlying contract to be different from the curial law, the
law of the seat of the arbitration. He was not expressing any view on the frequency
or otherwise of the law of the arbitration agreement differing from the law of the
seat of the arbitration. Longmore L.J. agreed with Mustill J's earlier dictum that it
would be rare for the law of the separable arbitration agreement to be different from
the law of the seat of the arbitration. The reason, was
‘that an agreement to arbitrate will normally have a closer and more real
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connection with the place where the parties have chosen to arbitrate, than with the
place of the law of the underlying contract, in cases where the parties have
deliberately chosen to arbitrate, in one place, disputes which have arisen under a
contract governed by the law of another place’.
“119. It was next submitted by the counsel for the appellants that even some
of the provisions contained in Part II would indicate that Part I of the Arbitration
Act, 1996 would not be limited to the arbitrations which take place in India. It
was pointed out that even though Part II deals specifically with recognition and
enforcement of certain foreign awards yet provision is made for annulment of the
award by two Courts, i.e., Courts of the country in which the award was made or
the Courts of the country under the law of which the award was made. This,
according to the learned counsel, recognizes the concurrent jurisdictions of
Courts in two countries to set aside the award. They rely on Section 48(1)(e) of
the Arbitration Act, 1996, which corresponds to Article V(1)(e) of the New York
Convention:
119.1 Mr. Sorabjee has emphasized that both these expressions must
necessarily be given effect to and no part of the Act or section can be
disregarded by describing the same as a “fossil”. This is in reply to the
submission made by Mr. Salve on the basis of the history of the inclusion of
the term “under the law of which” in Article V(1)(e). Mr. Sorabjee has
emphasised that the word “under the law of which” were specifically inserted
in view of the Geneva Convention, which limited the jurisdiction to only one
Court to set aside the award namely “the country in which the award was
made,” He, therefore, submits that this specific intention must be given effect
to. Not giving effect to the words “under the law of which the award was
made”, will allow many awards to go untested. At this stage, Mr. Sorabjee had
relied on Reliance Industries Ltd. (supra).
119.2 We must notice here that Mr. Sundaram in his submissions has not
gone so far as Mr. Sorabjee. According to Mr. Sundaram, the jurisdiction of a
domestic Court over an arbitration is neither conferred by the New York
Convention, nor under Part II, since Part II merely deals with circumstances
under which the enforcing court may or may not refuse to enforce the award.
That circumstance includes annulment of proceedings in a competent court,
i.e., the Court in the country where the arbitration is held or the Court having
jurisdiction in the country under the laws of which the arbitral disputes have
been conducted. According to Mr. Sundaram, providing two such situs for the
purposes of annulment does not ipso facto amount to conferring of jurisdiction
to annul, on any domestic Court. The provision only provides that if the
annulment proceedings are before such Courts, the award may not be
enforced. Therefore, to see if an arbitral
Page: 853
award can be annulled by the Court of the country, one has to look at the jurisdiction
of such Courts under the domestic law. The relevance of New York Convention and
Article V(1)(e) ends there, with merely recognizing possibility of two Courts having
jurisdiction to annul an award.
119.3 Mr. Subramanium emphasised that provisions contained in Part II

can not be said to be a complete code as it necessarily makes use of the
provisions of Part I. Since Part I prescribes the entire procedure for the
conduct of an arbitration and Part II is only to give recognition to certain
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foreign awards, the two parts have to be read harmoniously in order to make
the Indian Arbitration Law a complete code. He submits that Part I can not-be
read separately from Part II as certain provisions of Part I, which are
necessary for arbitrations are not covered by Part II. He gives an example of
the provision contained in Section 45, which empowers the term “judicial
authority” to refer parties to arbitration when seized of an action in a matter,
in respect of which parties have made an agreement as referred to in Section
44. The aforesaid provision contains a non-obstante clause. This clearly
indicates that it is contemplated by the legislature that provisions of Part I
would apply to matters covered by Part II. He, therefore, points out that if
Part I were to apply only to arbitrations that take place in India, then Indian
Courts would not be able to grant any interim relief under Section 9 to
arbitrations which take place outside India. He also points out that there are a
number of other provisions where Indian Courts would render assistance in
arbitrations taking place outside India. Learned senior counsel has also
pointed out the necessity to read Sections 34 and 48 of the Arbitration Act,
1996 harmoniously. He points out that barring Section 34, which involves the
challenge to an award, the other provisions in Part I and Part II are facilitative
in character.”
“131. Much emphasis has been laid by the learned counsel for the
appellants on the expression that enforcement of a foreign award may be
refused when the award “has been set aside or suspended….” “under the law
of which” that award was made. The aforesaid words and expressions appear
in Section 48, which is contained in Part II of the Arbitration Act, 1996 under
the title “enforcement of certain foreign awards”. The Courts in India under
Chapter I of Part II of the aforesaid Act have limited powers to refuse the
enforcement of foreign awards given under the New York Convention.
132. It would be apposite to notice the provisions of Section 48 at this
stage, which are as under:—
“48. Conditions for enforcement of foreign awards.-
(1) Enforcement of a foreign award may be re fused, at the request of
the party against whom it is invoked, only if that party furnishes to
the court proof that-
(2) Enforcement of an arbitral award may also
Page: 854
be refused if the court finds that-
(a) the subject-matter of the difference is not capable of settlement

by arbitration under the law of India; or
(b) the enforcement of the award would be contrary to the public
policy of India.
Explanation. - Without prejudice to the generality of clause (b), it
is hereby declared, for the avoidance of any doubt, that an award is in
conflict with the public policy of India if the making of the award was
induced or affected by fraud or corruption.
(3) If an application for the setting aside or suspension of the award has
been made to a competent authority referred to in clause (e) of
subsection (1) the Court may, if it considers it proper, adjourn the
decision on the enforcement of the award and may also, on the
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application of the party claiming enforcement of the award, order the
other party to give suitable security.”
133. The party which seeks to resist the enforcement of the award has to prove
one or more of the grounds set out in Section 48(1) and (2) and/or the explanation
of sub-section (2). In these proceedings, we are, however, concerned only with the
interpretation of the terms “country where the award was made” and “under the law
of which the award was made”. The provisions correspond to Article V(1)(e) of the
New York Convention, which reads as under:—
“V(1). Recognition and enforcement of the award may be refused, at the
request of the party against whom it is invoked, only if that party furnishes to
the competent authority where the recognition and enforcement is sought, proof
that:
(a) - (d) * * *
(e) the award has not yet become binding on the parties, or has been set
aside or suspended by a competent authority of the country in which, or
under the law of which, that award was made.
(2). Recognition and enforcement of an arbitral award may also be refused
if the competent authority in the country where recognition and
enforcement is sought finds that:
(a) the subject matter of the difference is not capable of settlement by
arbitration under the law of that country; or
(b) the recognition or enforcement of the award would be contrary to the
public policy of that country.
134. The aforesaid Article of the New York Convention has been bodily lifted and
incorporated in the Arbitration Act, 1996 as Section 48.
135. Thus, the intention of the legislature is-clear that the Court may refuse to
enforce the foreign award on satisfactory proof of any of the grounds mentioned in
Section 48(1), by the party resisting the enforcement of the award. The provision
sets out the defences open to the party to resist enforcement of a foreign award.
The words “suspended or set aside”, in Clause (e) of Section 48(1) can not be
interpreted to mean that, by necessary implication, the foreign award sought to be
enforced in India can also be challenged on merits in Indian Courts. The provision
merely recognizes that courts of the two nations which are competent to annul or
suspend an award. It does not ipso facto confer jurisdiction on such Courts for
annulment of an award made outside the country. Such jurisdiction has to be
specifically provided, in the relevant national legislation of the country in which the
Court concerned is located. So far as India is concerned, the Arbitration Act, 1996
does not confer any such jurisdiction on the Indian Courts to annul an international
commercial award made outside India. Such provision exists in Section 34, which is
placed in Part I. Therefore, the applicability of that provision is limited to the
awards made in India. If the arguments of the learned counsel for the appellants
are accepted, it would entail incorporating the provision contained in Section 34 of
the Arbitration Act, 1996, which is placed in Part I of the Arbitration Act, 1996 into
Part II of the said Act. This is not permissible as the intention of the Parliament was
clearly to confine the powers of the Indian Courts to set aside an award relating to
international commercial arbitrations, which take place in India.
136. As noticed above, this section corresponds to Article V(1)(e) of the New
York Convention. A reading of the Article V(1)(e) [Section 48(1)(e)] makes it clear
that only the
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courts in the country “in which the award was made” and the courts “under the law of
which the award was made” (hereinafter referred to as the “first alternative” and the
“second alternative” respectively) would be competent to suspend/annul the New York
Convention awards. It is clarified that Section 48(1)(e) is only one of the defences on
the basis of which recognition and enforcement of the award may be refused. It has no
relevance to the determination of the issue as to whether the national law of a country
confers upon its courts, the jurisdiction to annul the awards made outside the country.
Therefore, the word “suspended/set aside” in Section 48(1)(e) cannot be interpreted
to mean that, by necessary implication, the foreign awards sought to be enforced in
India can also be challenged on merits in Indian Courts. The provision only means that
Indian Courts would recognize as a valid defence in the enforcement proceedings
relating to a foreign award, if the Court is satisfied that the award has been set aside
in one of the two countries, i.e., the “first alternative” or the “second alternative”.
137. Mr. Sundaram had submitted that the two countries identified in
“alternative one” and “alternative two”, would have concurrent jurisdiction to annul
the award. In our opinion, interpreting the provision in the manner suggested by
Mr. Sundaram would lead to very serious practical problems.
138. In this context, it would be relevant to take note of some of the
observations made by Hans Smit, Professor of Law, Columbia University in the
Article titled “Annulment and Enforcement of International Arbitral Awards”. The
author points out the reasons for incorporating the second forum for annulment. He
states that-
“While, therefore, there appears to be no justification, based in reason and
principle, for providing for an exception to the general rule of recognition and
enforcement for the forum at the place of arbitration, the drafters of the
Convention compounded their error by providing for two fora for an annulment
action. For Article V(1)(e) envisages that an annulment action may be brought
“in the country in which the award was made” or “in the country……under the law
of which the award was made.” The disjunctive used in the Convention's text
naturally raises the question of whether the second forum is available only if the
first is not or whether the party seeking annulment has the option of selecting
either or even to try its luck in both. The legislative history of the Convention
sheds illuminating light on the issue.
The text of Article V(1)(e) originally proposed acknowledge only the bringing of
an annulment action in the place in which the award was made. One of the
delegates at the Conference devoted to the drafting of the Convention raised the
question of what would happen if the forum at the place of arbitration would refuse
to entertain an annulment action. The obviously correct answer to that question
would have been that, in that case, no annulment action could be brought and that
the happy consequence would be that only denial of recognition and enforcement
on grounds specified in the Convention would be possible. Instead, the drafters of
the Convention provided for an alternative forum in the country the arbitration laws
of which governed the arbitration. That choice was both most fateful and most
regrettable.”
139. These observations militate against the concurrent jurisdiction submission
of Mr. Sundaram. The observations made by the learned author, as noticed above,
make it clear that the “second alternative” is an exception to the general rule. It
was only introduced to make it possible for the award to be challenged in the court
of the “second alternative”, if the court of the “first alternative” had no power to
annul the award, under its national legislation. In our opinion, the disjunction would
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also tend to show that the “second alternative” would be available only if the first is
not. Accepting the submission made by Mr. Sundaram, would lead to unnecessary
confusion. There can be only one Court with jurisdiction to set aside the award.
There is a public policy consideration apparent, favouring the interpretation that,
only one Court would have jurisdiction to set aside the arbitral award. This public
policy aspect was considered by the Court of Appeal in England in the case of C v. D
(supra). The observation of the Court of Appeal in Paragraph 16 of the judgment
has already been reproduced earlier in this judgment.
140. It was pointed out by the Court of Appeal
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that accepting more than one jurisdiction for judicial remedies in respect of an award
would be a recipe for litigation and confusion. “Similarly, in the case of a single
complaint about an award, it could not be supposed that the aggrieved party could
complain in one jurisdiction and the satisfied party be entitled to ask the other
jurisdiction to declare its satisfaction with the award”.
141. The creation of such a situation is apparent from the judgment of this Court
in Venture Global Engineering (supra). In the aforesaid judgment, the award was
made by the London Court of International Arbitration on 3rd April, 2006.
Respondent No. 1, on 14th April, 2006, filed a petition to recognize and enforce the
award before the United States District Court, Eastern District Court of Michigan, in
the United States of America (for short the ‘US Court’). The appellant entered
appearance to defend this proceeding before the US Court by filing a cross petition.
In the said petition, it took objection to the enforcement of the award, which had
directed transfer of shares. The objection was that the direction was in violation of
Indian laws and regulations, specifically the Foreign Exchange Management Act (in
short the ‘FEMA’) and its notifications.
142. Two weeks later on 28th April, 2006, the appellant filed a suit in the City
Civil Court, Secunderabad seeking declaration to set aside the award and
permanent injunction on the transfer of shares. On 15th June, 2006, the District
Court passed an ad interim ex parte order of injunction, inter alia, restraining
respondent No. 1 for seeking or effecting the transfer of shares either under the
terms of the award or otherwise. Respondent No. 1 filed an appeal challenging the
said order before the High Court of Andhra Pradesh. The High Court admitted the
appeal and directed interim suspension of the order of the District Judge, but made
it clear that “respondent No. 1 would not affect the transfer of shares till further
orders”.
143. On 13th July, 2006, in response to the summons, respondent No. 1
appeared in the court and filed a petition under Order VII, Rule 11 for rejection of
the plaint. The trial court by its order dated 28th December, 2006, allowed the said
application and rejected the plaint of the appellant. On 27th February, 2007, the
High Court dismissed the appeal holding that the award cannot be challenged even
if it is against public policy and in contravention of statutory provisions. The
judgment of the High Court was challenged in appeal before this Court. The appeal
was allowed. It was held as follows:
“31. On close scrutiny of the materials and the dictum laid down in the three-
Judge Bench decision in Bhatia International we agree with the contention of Mr.
K.K. Venugopal and hold that paras 32 and 35 of Bhatia International make it
clear that the provisions of Part I of the Act would apply to all arbitrations
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including international commercial arbitrations and to all proceedings relating
thereto. We further hold that where such arbitration is held in India, the
provisions of Part I would compulsorily apply and parties are free to deviate to
the extent permitted by the provisions of Part I. It is also clear that even in the
case of international commercial arbitrations held out of India provisions of Part I
would apply unless the parties by agreement, express or implied, exclude all or
any of its provisions. We are also of the view that such an interpretation does not
lead to any conflict between any of the provisions of the Act and there is no
lacuna as such. The matter, therefore, is concluded by the three-Judge Bench
decision in Bhatia International.
* * *
33. The very fact that the judgment holds that it would be open to the parties
to exclude the application of the provisions of Part I by express or implied
agreement, would mean that otherwise the whole of Part I would apply. In any
event, to apply Section 34 to foreign international awards would not be
inconsistent with Section 48 of the Act, or any other provision of Part II as a
situation may arise, where, even in respect of properties situate in India and
where an award would be invalid if opposed to the public policy of India, merely
because the judgment-debtor resides abroad, the award can be enforced against
properties in India through personal compliance of the judgment-debtor and by
holding out the threat of contempt as is being sought to be done in the present
case. In such an event, the judgment-debtor cannot be deprived of his right
under Section 34 to in
Page: 857
voke the public policy of India, to set aside the award. As observed earlier, the public
policy of India includes (a) the fundamental policy of India; or (b) the interests of
India; or (c) justice or morality; or (d) in addition, if it is patently illegal. This
extended definition of public policy can be bypassed by taking the award to a foreign
country for enforcement.
* * *
37. In view of the legal position derived from Bhatia International we are
unable to accept Mr. Nariraan's argument. It is relevant to point out that in this
proceeding, we are not deciding the merits of the claim of both parties,
particularly, the stand taken in the suit filed by the appellant herein for setting
aside the award. It is for the court concerned to decide the issue on merits and
we are not expressing anything on the same. The present conclusion is only with
regard to the main issue whether the aggrieved party is entitled to challenge the
foreign award which was passed outside India in terms of Sections 9/34 of the
Act. Inasmuch as the three-Judge Bench decision is an answer to the main issue
raised, we are unable to accept the contra view taken in various decisions relied
on by Mr. Nariman. Though in Bhatia International! the issue relates to filing a
petition under Section 9 of the Act for interim orders the ultimate conclusion that
Part I would apply even for foreign awards is an answer to the main issue raised
in this case.
* * *
42. The learned Senior Counsel for the appellant submitted that the first
respondent Satyam Computer Services Ltd. could not have pursued the
enforcement proceedings in the District Court in Michigan, USA in the teeth of
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the injunction granted by the courts in India which also, on the basis of the
comity of courts, should have been respected by the District Courts in Michigan,
USA. Elaborating the same, he further submitted that the injunction of the trial
court restraining the respondents from seeking or effecting the transfer of shares
either under the terms of the award or otherwise was in force between 15-6-
2006 and 27-6-2006. The injunction of the High Court in the following terms-
“the appellant (i.e. Respondent 1) shall not effect the transfer of shares of
the respondents pending further orders”
was in effect from 27-6-2006 till 28-12-2006. The judgment of the US
District Court was on 13-7-2006 and 31-7-2006 when the award was directed
to be enforced as sought by Respondent 1, notwithstanding the injunction to
the effect that the appellant (Respondent 1 herein) “shall not effect the
transfer of shares of the respondents pending further orders”. The first
respondent pursued his enforcement suit in Michigan District Courts to have a
decree passed directing. VGE shall deliver to Satyam or its designee, share
certificates in a form suitable for immediate transfer to Satyam evidencing all
of the appellant's ownership interest in Satyam Venture Engineering Services
(SVES), the party's joint venture company”. Further, “VGE (the appellant
herein) shall do all that may otherwise be necessary to effect the transfer of
its ownership interest in SVES to Satyam (or its designee)”. It is pointed out
that obtaining this order by pursuing the case in the US District Courts, in the
teeth of the prohibition contained in the order of the High Court, would not
only be a contempt of the High Court but would render all proceedings before
the US courts a brutumfulmen, and liable to be ignored. Though Mr. R.F.
Nariman has pointed out that the High Court only restrained the respondent
from effecting transfer of the shares pending further orders by the City Civil
Court, Secunderabad, after the orders of the trial court as well as limited order
of the High Court, the first respondent ought not to have proceeded with the
issue before the District Court, Michigan without getting the interim
orders/directions vacated.
* * *
47. In terms of the decision in Bhatia International we hold that Part I of the
Act is applicable to the award in question even though it is a foreign award. We
have not expressed anything on the merits of claim of both the parties. It is
further made clear that if it is found that the court in which the appellant has
filed a petition challenging the award is not competent and having jurisdiction,
the same shall be transferred to the appropriate court. Since from the inception
of ordering notice in the special leave petition both parties
Page: 858
were directed to maintain status quo with regard to transfer of shares in issue, the
same shall be maintained till the disposal of the suit. Considering the nature of
dispute which relates to an arbitration award, we request the court concerned to
dispose of the suit on merits one way or the other within a period of six months from
the date of receipt of copy of this judgment. Civil appeal is allowed to this extent. No
costs.”
With these observations, the matter was remanded back to the trial court to
dispose of the suit on merits. The submissions made by Mr. K.K. Venugopal, as
noticed in paragraph 42, epitomize the kind of chaos which would be created by
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two court systems, in two different countries, exercising concurrent jurisdiction
over the same dispute. There would be a clear risk of conflicting decisions. This
would add to the problems relating to the enforcement of such decisions. Such a
situation would undermine the policy underlying the New York Convention or the
UNCITRAL Model Law. Therefore, we are of the opinion that appropriate manner
to interpret the aforesaid provision is that “alternative two” will become available
only if “alternative one” is not available.
144. The expression “under the law” has also generated a great deal of
controversy as to whether it applies to “the law governing the substantive contract”
or “the law governing the arbitration agreement” or limited only to the procedural
laws of the country in which the award is made.
145. The consistent view of the international commentators seems to be that the
“second alternative” refers to the procedural law of the arbitration rather than “law
governing the arbitration agreement” or “underlying contract”. This is even
otherwise evident from the phrase “under the law, that award was made”, which
refers to the process of making the award (i.e., the arbitration proceeding), rather
than to the formation or validity of the arbitration agreement.
146. Gary B. Born in his treatise titled International Commercial Arbitration takes
the view in Chapter 21 that the correct interpretation of Article V(1)(e)'s “second
alternative” is that it relates exclusively to procedural law of the arbitration which
produced an award and not to other possible laws (such as the substantive law
governing the parties underlying dispute or governing the parties' arbitration
agreement). He further notices that courts have generally been extremely reluctant
to conclude that the parties have agreed upon a procedural law other than that of
the arbitral seat. Consequently, according to Born, although it is theoretically
possible for an award to be subject to annulment outside the arbitral seat, by virtue
of Article V(1)(e)'s “second alternative”, in reality this is a highly unusual “once-in-
a-blue-moon” occurrence. He further notices that a number of national courts have
considered the meaning of Article V(1)(e)'s “second alternative”. Many, but not all,
courts have concluded that the alternative refers to “the procedural law of
arbitration”, rather than the “substantive law applicable to the merits of the parties'
dispute or to the parties' arbitration agreement.” In our opinion, the views
expressed by the learned author are in consonance with the scheme and the spirit
in which the New York Convention was formulated. The underlying motivation of the
New York Convention was to reduce the hurdles and produce a uniform, simple and
speedy system for enforcement of foreign arbitral award. Therefore, it seems to be
accepted by the commentators and the courts in different jurisdictions that the
language of Article V(1)(e) referring to the “second alternative” is to the country
applying the procedural law of arbitration if different from the arbitral forum and not
the substantive law governing the underlying contract between the parties.
Case Law
147. At this stage, it would be appropriate to consider the manner in which the
expression “under the law” has been interpreted judicially in different jurisdictions.
148. The aforesaid expression came up for consideration in the case of Karaha
Bodas Co. LLC v. Perusahaan Pertambangan Min-yak Dan Gas Bumi Negara, the
Federal Court in the U.S. considered the provisions contained in Article V(1)(e) and
observed as follows:—
“Article V(1)(e) of the Convention provides
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that a court of secondary jurisdiction may refuse to enforce an arbitral award if it “has
been set aside or suspended by a competent authority of the country in which, or
under the law of which, that award was made.” Courts have held that the language,
“the competent authority of the country….under the law of which, that award was
made” refers exclusively to procedural and not substantive law, and more precisely, to
the regimen or scheme of arbitral procedural law under which the arbitration was
conducted, and not the substantive law………applied in the case…….
Under the New York Convention, an agreement specifying the place of the
arbitration creates a presumption that the procedural law of that place applies to
the arbitration. Authorities on international arbitration describe an agreement
providing that one country will be the site of the arbitration but the proceedings
will be held under the arbitration law of another country by terms such as
“exceptional”; “almost unknown”; a “purely academic invention”; “almost never
use in practice”; a possibility “more theoretical than real”; and a once-in-a-blue-
moon set of circumstances. “Commentators note that such an agreement would
be complex, inconvenient, and inconsistent with the selection of a neutral forum
as the arbitral forum…….”
149. Similarly, in the case of Karaha Bodas Co. LLC (Cayman Islands) v.
Perusahaan Pertambangan Minyak Dan Gas Burnt Negara - Pertamina (Indonesia),
the aforesaid legal proposition is reiterated. In this case, again the Hong Kong Court
considered Article V(1)(e) of the Convention at length. This was a case where the
substantive law applicable to the contract was Indonesian law and the country of
the arbitration i.e. seat of arbitration as per the arbitration agreement was
Switzerland. It was contended relying on the second leg of Article V(1)(e) that the
law under which the award had been made was Indonesian law and therefore
Pertamina's challenge in Indonesia was valid. This was rejected. It was held that
Article V(1)(e) referred to the procedural or curial law and that because the seat of
the arbitration was in Switzerland, the lex arbitrior the curial or procedural law
applicable to the arbitration was Swiss law. Therefore, only the Swiss Courts had
jurisdiction to set aside the award.
150. In International Electric Corporation v. Bridas Sociedad Anonima Petroleva,
Industrial Commercial, the New York Court held that the italicised words referred to
the procedural law governing the arbitration, and not to the substantive law
governing the agreement between the parties, since the situs of arbitration is
Mexico, the governing procedural law that of Mexico, only Mexico Courts have
jurisdiction under the Convention to vacate the award.
151. Redfern and Hunter (supra) at paragraph 11.96 state that the court which
is competent to sustain or set aside an award is the court of the country in
“alternative one” or “alternative two”. The authors, however, further state that “this
Court will almost invariably be the national court at the seat of the arbitration”.
They point out that the prospect of an award being set aside under the procedural
law of a State other than that at the seat of arbitration is unlikely. They point out
that an ingenious (but unsuccessful) attempt was made to persuade the US District
Court to set aside an award made in Mexico, on the basis that the reference to the
law under which that award was made was a reference to the law governing the
dispute and not to the procedural law (Paragraph 11.96). The Learned Authors had
made a reference to the case International Standard Electric Corp. (US) v. Bridas
Sociedad Anonima Petrolera (Argentina). The Court rejected the aforesaid argument
with the following observations:—
“Decisions of foreign courts under the Convention uniformly support the view
that the clause in question means procedural and not substantive (that is, in
most cases, contract law)….
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Accordingly, we hold that the contested language in Article V(1)(e) of the

Convention….refers exclusively to procedural and not substantive law, and more
precisely to the regimen or scheme of arbitral procedural law under which the
arbitration was conducted.”
The Court went on to hold that since the quorum of arbitration was Mexico,
only the Mexican
Page: 860
court had jurisdiction to set aside the award.
152. The correct position under the New York Convention is described very
clearly and concisely by Gary B. Born in his book Inter national Commercial
Arbitration (Kluwer Law International, Vol. I), Chapter X Page 1260 as follows:
“This provision is vitally important for the international arbitral process,
because it significantly restricts the extent of national court review of
international arbitral awards in annulment actions, limiting such review only to
the courts of the arbitral seat (that is, the state where the award is made or the
state whose procedural law is selected by the parties to govern the arbitration).
In so doing, the Convention ensures that courts outside the arbitral seat may not
purport to annul an international award, thereby materially limiting the role of
such courts in supervising or overseeing the procedures utilized in international
arbitrations.
At the same time, the New York Convention also allows the courts of the
arbitral seat wide powers with regard to the annulment of arbitral awards made
locally. The Convention generally permits the courts of the arbitral seat to annul
an arbitral award on any grounds available under local law, while limiting the
grounds for nonrecognition of Convention awards in courts outside the arbitral
seat to those specified in Article V of the Convention. This has the effect of
permitting the courts of the arbitral seat substantially greater scope than courts
of other states to affect the conduct or outcome of an international arbitration
through the vehicle of annulment actions. Together with the other provisions of
Articles II and V, this allocation of annulment authority confirms the (continued)
special importance of the arbitral seat in the international arbitral process under
the New York Convention.”
(emphasis supplied)
153. In our opinion, the aforesaid is the correct way to interpret the expressions
“country where the award was made” and the “country under the law of which the
award was made”. We are unable to accept the submission of Mr. Sundaram that
the provision confers concurrent jurisdiction in both the fora. “Second alternative” is
available only on the failure of the “first alternative”. The expression under the law
is the reference only to the procedural law/curial law of the country in which the
award was made and under the law of which the award was made. It has no
reference to the substantive law of the contract between the parties. In such view
of the matter, we have no hesitation in rejecting the submission of the learned
counsel for the appellants.
154. At this stage, we may notice that in spite of the aforesaid international
understanding of the second limb of Article V(1)(e), this Court has proceeded on a
number of occasions to annul an award on the basis that parties had chosen Indian
Law to govern the substance of their dispute. The aforesaid view has been
expressed in Bhatia International (supra) and Venture Global Engineering (supra).
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In our opinion, accepting such an interpretation would be to ignore the spirit
underlying the New York Convention which embodies a consensus evolved to
encourage consensual resolution of complicated, intricate and in many cases very
sensitive International Commercial Disputes. Therefore, the interpretation which
hinders such a process ought not to be accepted. This also seems to be the view of
the national courts in different jurisdictions across the world. For the reasons stated
above, we are also unable to agree with the conclusions recorded by this Court in
Venture Global Engineering (supra) that the foreign award could be annulled on the
exclusive grounds that the Indian law governed the substance of the dispute. Such
an opinion is not borne out by the huge body of judicial precedents in different
jurisdictions of the world.”
37. In view of Bharat Aluminium Company's case (supra), I am dealing with the
controversy whether the foreign arbitral award can be enforced in view of the
provisions of Part II and the First Schedule of the 1996 Act. Before proceeding further,
it would be apposite to discuss Sections 44 to 49 which are in Chapter I of Part II of
the 1996 Act. Section 44 defines “foreign award” to mean an arbitral award on
differences between persons arising out of legal relationships whether contractual or
not, to be considered as commercial under the law in force in India; Section 45 deals
with the power of judicial authority to refer parties to arbitration; Section 46
specifically
Page: 861
states that any foreign award which would be enforceable under Chapter I of Part II of
the 1996 Act shall be treated as binding for all purposes on the persons as between
whom it was made and Section 47 deals with the evidence required for enforcement of
foreign award at the time of application moved before the Court. A party is required to
submit original award or a copy thereof, duly authenticated in the manner required by
the law of the country in which it was made and the original agreement for arbitration
or a duly certified copy thereof and to the evidence to prove that the award is a foreign
award. Section 48 of the 1996 Act provides that Executing Court/Enforcing Court shall
enforce the award only after it is satisfied that the parties were not under some
incapacity and were given proper notice and dispute submitted to arbitration was not
behind the scope of contract. Five conditions for enforcement of foreign award have
been laid down and grounds for refusal of an arbitral award have been mentioned in
Section 48(2). Section 49 specifically provides that if the Court is satisfied that foreign
award is enforceable under Chapter I of Part-II, the award shall be deemed to be a
decree of that Court and can be enforced. Similarly, the convention on the recognition
and enforcement of foreign arbitral awards mentioned in the First Schedule, as
referred in Section 44 of Part II, states that a party shall give full effect to arbitration
agreements by requiring courts to deny the parties access to court in contravention of
their agreement to refer the matter to an arbitral tribunal.
38. Admittedly, Croatia, India and France (seat of arbitration) are signatory to the
New York Convention. Perusal of Article 7 of the New York Convention and Chapter I of
Part II of the 1996 Act reveals that the Court cannot refuse enforcement of the foreign
arbitral award when national law permits it. Clause 11 of the contract, specifically
mentions that the arbitration shall be in accordance with the Rules of Arbitration of
ICC, Paris by a Board of three Arbitrators comprising one nominee each of the
purchasers i.e. DLF and the supplier i.e. Koncar and third to be appointed by ICC,
Paris. It is also mentioned therein that venue of arbitration proceedings shall be Paris
and proceedings shall be conducted in English language and Swiss Federal Code of
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Obligations shall apply. It is also one of the terms that award made in such arbitration
proceedings shall be final and binding on both the parties. The arbitration clause
specifically mentions the rules applicable to the arbitration proceedings and also
mentions under what law and at which place the arbitration is to be carried out. There
is express choice of governing law and jurisdiction in clause 11.0 of the contract. When
there is no express choice of governing law and jurisdiction provided in the contract, in
that event, the Court will decide as to which law is to apply in accordance with the
relevant principles on conflict of laws in that jurisdiction. The arbitration clause within
the main contract is a contract in its own right collateral to the main contract and is
severable from the main contract.
39. It is worth mentioning that understanding the functioning of international
commercial arbitration is a difficult task because of interplay of concepts, jurisdiction
and rules. It is important to note that the law ‘applicable to arbitration’ is not the law
‘applicable in arbitration’. The law applicable in arbitration determines how the
arbitrators go about making or refusing an award. The law applicable to arbitration
regulates from where the arbitrators and national courts enforcing/annulling awards
derive their authority. In view of specific clause in the main contract, the petitioners
cannot contend that arbitration proceedings were wrongly conducted at the place and
the governing law has been wrongly applied.
40. The basic purpose of international conventions is harmonization and unification
of the international trade laws. The New York Convention is a groundbreaking
international treaty which provides a set of rules for recognition and enforcement of
foreign arbitral awards. The New York Convention has been specifically accepted and
rectified by the India, as such has a force of law when it is specifically incorporated in
the 1996 Act. It would be important to note that admittedly, the parties entered into a
contract and agreed to get it settled through the International Court of Arbitration. The
International Court of Arbitration heralded the creation of international commercial
arbitration system. There is no dispute with regard to neutrality as the country where
the seat of arbitration is there, is an independent country and a signatory to the New
York Convention. There is also finality clause in the contract which specifically states
that arbitration award is final and binding on both the parties.
41. There is also specific choice mentioned in the arbitration clause as to where the
proceedings are
Page: 862
to be conducted and which rules will be followed. The language in which the
arbitration is to be conducted, is also specified in the contract. In addition to the
above, law governing the contract in arbitration clause has also been mentioned.
Furthermore, DLF was given due notice and opportunity and it accepted the
proceedings. Before conducting proceedings, the parties were given notice to reply the
claim etc. Thereafter, issues were settled and the third Arbitrator was appointed by the
ICC, who framed the time schedule and also drafted the issues to be decided. The
proceedings were signed by all the three Arbitrators as well as the parties. Thereafter,
sufficient opportunity of hearing was afforded to the parties and award was passed.
Meaning thereby, the petitioners-DLF have accepted the arbitration proceedings. Once
the petitioners-DLF have accepted the arbitration proceedings, it cannot subsequently
challenge the same on grounds of perversity. After finalization of the arbitration
proceedings, the award could have been challenged in a country where the award was
made in appeal or in upper Tribunal in accordance with law of that country. No
document has been brought on record to show that DLF had ever challenged the same.
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In view of this, the arbitral award has become final and it can only be challenged on
limited grounds as mentioned in Section 48 of the 1996 Act.
42. It would be appropriate to reproduce Article 27 of the Rules of Arbitration in

force as from 1 January 1998 framed by the ICC which reads as under:
“Article 27
Scrutiny of the Award by the Court
Before signing any Award, the Arbitral Tribunal shall submit it in draft form to
the Court. The court may lay down modifications as to the form of the Award and,
without affecting the Arbitral Tribunal's liberty of decision, may also draw its
attention to points of substance. No Award shall be rendered by the Arbitral
Tribunal until it has been approved by the Court as to its form.”
43. The above Article provides that the Arbitral Tribunal cannot pass an award
without scrutiny of the award by the International Court of Arbitration and the arbitral
award is subject to scrutiny of International Court of Arbitration. The Arbitral Tribunal
cannot render the award unless it is approved by the International Court of Arbitration
meaning thereby, there is a check even on the Arbitrators and their action is also
subject to scrutiny.
44. In view of above discussion, I hold that the award passed by the Arbitral
Tribunal is final and binding on the parties and can be enforced under Part II of the
1996 Act.
Public Policy of India:
45. Now the question arises whether the arbitral award can be challenged on the
ground of “public policy”. In Renusagar (supra), the Hon'ble Supreme Court while
construing the term “public policy” in view of Section 7(1)(b)(ii) of Foreign Awards
(Recognition and Enforcement) Act, 1961 applied the principles of private international
law and held that an award would be contrary to public policy if such enforcement
would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India;
or (iii) justice or morality and cannot be set aside on merits. How ever, the expression
“public policy” was interpreted by the Supreme Court in the case of SAW Pipes
(supra). In SAW Pipes (supra), the Hon'ble Supreme Court while dealing with the
domestic award held that the award could be set aside on the ground that the tribunal
violated the Indian law and eventually, added “patent illegality” as an additional
ground to the Renusagar's supra. However, in Phulchand (supra), the Supreme Court
affirmed the decision given in SAW Pipes (supra) and further held that there is no
distinction between the interpretation of the term ‘public policy’ under Section 34 or
48 of the 1996 Act. In Phulchand's case (supra), the Hon'ble Supreme Court held as
under:
“In a case where judgment and decree is challenged before the appellate court or
the court exercising revisional jurisdiction, the jurisdiction of such court may be
wider. Therefore, in a case where validity of an award is challenged, there is no
necessity of giving a narrower meaning to the term public policy of India.”
46. Thereafter, the Hon'ble Supreme Court in Shri Lai Mahal Limited v. Progetto
Grano Spa, 2013 (4) RCR (Civil) 105 considered the judgments of Renusagar (supra),
Saw Pipes (supra) and Phulchand (supra) and overruled the decisions rendered in Saw
Pipes (supra) and Phul chand (supra). The Hon'ble Supreme Court after analysing the
earlier law held that enforcement of foreign arbitral award would be refused on the
Page: 863
ground that it is contrary to the public policy of the India only if it is covered by one of
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the three categories enumerated in Renusagar (supra) and also held that Section 48 of
the 1996 Act does not give an opportunity to the Court to have a second look at a
foreign arbitral award at the enforcement stage; under this section, scope of review of
the foreign award on its merit is very limited. It was also held that the Court enforcing
the award does not exercise the appellate jurisdiction over the foreign arbitral award.
In view of the settled proposition of law, the Court enforcing the award cannot
reappraise the evidence adduced by the parties and cannot sit as an appellate court.
Thus the reasonability of the reasons of foreign arbitral award made by the Arbitral
Tribunal cannot be looked into.
47. In view of this, there is no cogent evidence on record with regard to violation of
“public policy” of India or the law which may warrant interference in the foreign
arbitral award.
Force Majeure:
48. The force majeure clause of the contract reads as under:
“Article No. 9.0 = force majeure
Acts of Government in their sovereign capacity,. or by reasons of war, hostility,
civil commotion, sabotage, fires, floods, explosions, epidemics, quarantine
restrictions, strikes, lockouts or acts of God (hereinafter referred to as “events”)
shall constitute force majeure, provided:
(i) a notice is given to/by the Purchaser/Supplier within 15 days of the
occurrence and cessation of such event;
(ii) it can be established by the supplier/purchaser that the said event or events:
(a) had delayed performance of his work/services obligations.
(b) was beyond his reasonable control and not due to the default or
negligence of the supplier.
The time for performance of the contractual obligations shall then be extended
by a period not more than the duration of such events. If the event continues
beyond a continuous period of 90 days both parties shall promptly meet, discuss
and arrive at the future course of action. In case the parties, after such meeting
of discussions are unable to bring about a mutual agreement on the future
course of action within one month, the contract may be terminated. In event of
termination due to reasons attributable to the supplier, the supplier shall
promptly refund all the payments received by them from the purchaser. It is
expressly understood that this Article shall not prejudice the rights of either
parties to claim loss or damages under any other provisions of the contract.”
49. The terms of the force majeure clause specficially states that force majeure will
be considered when the situation arises qua purchaser and supplier. A notice is
specifically required to be given and the intimation of cessation of such event is also
required to be given by either party. At the most, time can be extended for
performance of the contract. The requirement of force majeure are as under:
(i) It must proceed from a cause not brought about by the defaulting party's
default.
(ii) The cause must be inevitable and unforeseeable.
(iii) The cause must make execution of the contract wholly impossible.
50. Perusal of terms of the above said clause clearly establishes that efforts should
be made for performance of the contract. The specific conditions have been mentioned
in the clause which are treated as force majeure. There is no categoric evidence of
happening of the events as mentioned in the force majeure clause which may result
into applicability of the same.
51. Any delay or failure in the performance by either party shall be excused if and
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-
to the extent caused by the occurrence of force majeure. For the purposes of this
contract, force majeure shall mean a cause or event that is not reasonably foreseeable
or otherwise caused by or under the control of the party claiming force majeure,
including act of God, restraint of government, governmental acts, injunctions, labour
strikes by the employees of the supplier and the purchaser, that prevented the
supplier from furnishing the material and equipmen beyond the reasonable
anticipation and control of the supplier. But here is the case where the purchaser has
failed to lead any evidence with regard to strike by its employees. There is no evidence
on record which may indicate that supplier had committed any default, rather their
evidence is to the effect that twice the amendment was made in the contract and
there
Page: 864
after the petitioners instead of sticking to the stand of its force majeure, wrote a letter
dated 09.09.1999 questioning the ability of Koncar to meet its contractual obligations.
In spite of letters and the last possible date for shipment i.e. 30.09.1999, neither DLF
inspector nor its representatives visited Koncar-supplier for inspection of the
generators. As a result of it, Koncar was unable to deliver the generators, in the
meantime, letter of credit expired on 21.10.1999.
52. In view of the self-contradictory stand of the petitioners-DLF with regard to

supply of material, the plea of force majeure cannot be accepted. Otherwise also, the
said plea was raised before the Arbitral Tribunal which has been duly considered and
rejected. If at all, DLF was aggrieved against the foreign arbitral award, it should have
challenged the same in the country of seat of arbitration. The contentions of force
majeure is also not sustainable for the reason that there is no reference in the contract
that the material is for Karikkayam Project. The Arbitral Tribunal while considering the
matter relied upon the terms of the contract between the parties. If third party rights
are involved, the same could have been mentioned in the contract, itself. If any strike
occurred in the Karikkayam Project, it cannot be a ground for the petitioner to raise
the plea of force majeure.
53. In my opinion, the effect of alleged strike in the project cannot be treated as an
event which affected the DLF rendering it unable to enforce the contract, rather it is a
failure of the DLF to perform its obligations under the contract.
Section 56 of the Indian Contract Act
54. Section 56 of the Indian Contract Act, 1872 reads as under:
“56. An agreement to do an act impossible in itself is void.
A contract to do an act which, after the contract is made, becomes impossible,
or, by reason of some event which the promisor could not prevent, unlawful,
becomes void when the act becomes impossible or unlawful.
Where one person has promised to do something, which he knew, or with
reasonable diligence, might have known, and which the promisee did not know to
be impossible or unlawful, such promisor must make compensation to such
promisee for any loss which such promisee sustains through the non-performance
of the promise.”
55. Doctrine of frustration is an aspect and part of law of discharge of contract by
reasons of supervening impossibility or illegality of the act agreed to be done. Section
56 of the Contract Act, 1872 lays a positive rule relating to frustration. It is common
rule of contract that a party is bound to perform the obligations which it had under
taken and cannot be excused because performance had subsequently become
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-
impossible. The principle of frustration signifies a set of circum stances arising after
the formation of contract, the occurrence of which is due to no fault of either party
which renders the performance of contract by one or both parties physically and
commercially impossible. Only in those circum stances, the contract can be dissolved
by doctrine of frustration. There are no circumstances in the present case which may
indicate that the performance of contract by the DLF-petitioners physically,
commercially and substantially impossible, rather stand of the DLF-petitioners as
discussed above in the force majeure clause is that respondent failed to perform its
obligations. Once the petitioners are taking the plea that defaulting party is the
respondent, then the DLF-petitioners cannot invoke the doctrine of frustration and
Section 56 of the Indian Contract Act, 1872.
Judicial Review:
56. The question also arises whether High Court has power of judicial review under
Articles 226/227 of the Constitution of India to set aside the foreign arbitral award and
the impugned order.
57. A larger Bench of 7 Judges of the Supreme Court in L. Chandra Kumar v. Union
of India, (1997) 3 SCC 261 finally came to the conclusion in following words:
“90. We may first address the issue of exclusion of the power of judicial review of
the High Courts. We have already held that in respect of the power of judicial
review, the jurisdiction of the High Courts under Articles 226/227 cannot wholly be
excluded. It has been contended before us that the Tribunals should not be allowed
to adjudicate upon matters where the vires of legislations is questioned, and that
they should restrict themselves to handling matters where constitutional issues are
not raised. We cannot bring ourselves to agree to this proposition
Page: 865
as that may result in splitting up proceedings and may cause avoidable delay. If such
a view were to be adopted, it would be open for litigants to raise constitutional issues,
many of which may be quite frivolous, to directly approach the High Courts and thus
subvert the jurisdiction of the Tribunals. Moreover, even in these special branches of
law, some areas do involve the consideration of constitutional questions on a regular
basis; for instance, in service law matters, a large majority of cases involve an
interpretation of Articles 14, 15 and 16 of the Constitution. To hold that the Tribunals
have no power to handle matters involving constitutional issues would not serve the
purpose for which they were constituted. On the other hand, to hold that all such
decisions will be subject to the jurisdiction of the High Courts under Articles 226/227
of the Constitution before a Division Bench of the High Court within whose territorial
jurisdiction the Tribunal concerned falls will serve two purposes. While saving the
power of judicial review of legislative action vested in the High Courts under Articles
226/227 of the Constitution, it will ensure that frivolous claims are filtered out through
the process of adjudication in the Tribunal. The High Court will also have the benefit of
a reasoned decision on merits which will be of use to it in finally deciding the matter.
91. It has also been contended before us that even in dealing with cases which
are properly before the Tribunals, the manner in which justice is dispensed by them
leaves much to be desired. Moreover, the remedy provided in the parent statutes,
by way of an appeal by special leave under Article 136 of the Constitution, is too
costly and inaccessible for it to be real and effective. Furthermore, the result of
providing such a remedy is that the docket of the Supreme Court is crowded with
decisions of Tribunals that are challenged on relatively trivial grounds and it is
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-
forced to perform the role of a first appellate court. We have already emphasised
the necessity for ensuring that the High Courts are able to exercise judicial
superintendence over the decisions of the Tribunals under Article 227 of the
Constitution. In R.K. Jain case, after taking note of these facts, it was suggested
that the possibility of an appeal from the Tribunal on questions of law to a Division
Bench of a High Court within whose territorial jurisdiction the Tribunal falls, be
pursued. It appears that no follow-up action has been taken pursuant to the
suggestion. Such a measure would have improved matters considerably. Having
regard to both the aforestated contentions, we hold that all decisions of Tribunals,
whether created pursuant to Article 323-A or Article 323-B of the Constitution, will
be subject to the High Court's writ jurisdiction under Articles 226/227 of the
Constitution, before a Division Bench of the High Court within whose territorial
jurisdiction the particular Tribunal falls.”
58. The supervisory jurisdiction under Article 227 is exercised for keeping the
subordinate courts within their bounds for their jurisdiction. When a subordinate Court
assumes jurisdiction which does not have or has failed to exercise its jurisdiction
which it does have or the jurisdiction though available is being exercised by the Court
in a manner not permitted by law and the failure of justice or grave injustice has
occasioned thereby the High Court has power to exercise its supervisory jurisdiction.
The exercise of supervisory jurisdiction is not available to correct mere errors of fact or
of law unless the error is manifest and apparent on the face of proceedings or is based
on utter disregard of provisions of law and a grave injustice or gross failure of justice
has occasioned thereby.
59. There is specific provision in the rules framed by the ICC to scrutinize the
award. The enforcing court has come to the conclusion that the Arbitral Tribunal had
already dealt with all the objections raised by the DLF. The enforcing court has rightly
come to the conclusion that the foreign arbitral award cannot be said to be perverse
nor is against the ‘public policy’ of India. The scope of judicial review of the impugned
order is very limited. It can be considered only if it falls under Section 48(2) of the
1996 Act. The High Court in exercise of supervisory jurisdiction will not convert itself
into Court of appeal and indulge in re-appreciation or evaluation of the evidence. In
view of above discussion, I am unable to conclude that impugned order is vitiated or
call for interference. I, therefore, hold that the present petition is devoid of merits,
hence, dismissed.
60. No order as to costs.
———
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SCC Online Web Edition, Copyright © 2020

Page 1 Wednesday, April 29, 2020

2014 SCC OnLine P&H 24894 : (2014) 5 RCR (Civil) 838

In the High Court of Punjab and Haryana

DLF Ltd. and another … Petitioners;

The Judgment of the Court was delivered by

always the end of contentious process. Success in arbitration is ultimately determined

(i) the redesigning of the generators by Koncar;

amendment which would have express acknowledged the amalgamation of DLF

This privity of contract necessarily includes the arbitration clause provided in

following findings in para No. 5:

“ACCORDINGLY, THE ARBITRAL TRIBUNAL:

the UNCITRAL Model law in the area of minimizing judicial intervention.

119.3 Mr. Subramanium emphasised that provisions contained in Part II

be refused if the court finds that-

(a) the subject-matter of the difference is not capable of settlement

Accordingly, we hold that the contested language in Article V(1)(e) of the

court had jurisdiction to set aside the award.

42. It would be appropriate to reproduce Article 27 of the Rules of Arbitration in

52. In view of the self-contradictory stand of the petitioners-DLF with regard to

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