Supreme Court of India
PASL WIND SOLUTIONS PRIVATE LIMITEDversusGE POWER CONVERSION INDIA PRIVATE LIMITED
- Citation
- 2021 INSC 264
- Decided
- 20 April 2021
- Disposal
- Disposed off
- Bench
- R F NARIMAN
Holding
Two Indian parties may agree to a foreign seat of arbitration, and an award made under such an agreement is a foreign award enforceable under Part II of the Arbitration Act.
Summary
PASL Wind Solutions and GE Power Conversion India, both Indian companies, entered a settlement agreement that provided for arbitration under ICC rules with the seat in Zurich and the substantive law of India. A dispute over warranty claims was arbitrated, the arbitrator held the seat to be Zurich (with hearings in Mumbai) and issued an award in favor of GE. PASL challenged the award in Indian courts, arguing that two Indian parties cannot select a foreign seat and that sections 23 and 28 of the Contract Act and section 34(2A) of the Arbitration Act barred enforcement, also invoking public policy and the Commercial Courts Act. The Supreme Court held that parties may freely choose a foreign seat, that the award satisfies the four ingredients of a foreign award under section 44 of the Arbitration Act, and that Part I and Part II of the Act are mutually exclusive, rendering the High Court’s enforcement order valid. The Court set aside the lower court’s finding that the respondent’s section 9 application was non‑maintainable and dismissed the appeal.
Issues considered
- The validity of a clause allowing two Indian parties to designate a foreign seat of arbitration.
- Whether an award rendered under such a clause qualifies as a 'foreign award' under section 44 of the Arbitration Act, 1996 and is enforceable in India.
- The applicability of sections 23 and 28 of the Indian Contract Act and section 34(2A) of the Arbitration Act to bar enforcement.
- The interaction between the Arbitration Act and the Commercial Courts Act, particularly section 10(3).
Legislation cited
- Arbitration and Conciliation Act, 1996s. 10, s. 21, s. 2(1)(f), s. 2(2), s. 28(1)(a), s. 34(2A), s. 44, s. 45, s. 47, s. 48, s. 49, s. 9
- Commercial Courts Act, 2015s. 10, s. 21
- Foreign Awards Act, 1961s. 6, s. 7
- Indian Contract Act, 1872s. 23, s. 28
- New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958
Subjects
arbitrationforeign awardseat of arbitrationparty autonomyArbitration ActNew York Conventionpublic policyenforcementIndian contract law
Judgment
532 [2021]
SUPREME COURT 4 S.C.R. 532
REPORTS [2021] 4 S.C.R.
A PASL WIND SOLUTIONS PRIVATE LIMITED
v.
GE POWER CONVERSION INDIA PRIVATE LIMITED
(Civil Appeal No. 1647 of 2021)
B APRIL 20, 2021
[ROHINTON FALI NARIMAN, B.R. GAVAI AND
HRISHIKESH ROY, JJ.]
Arbitration and Conciliation Act, 1996:
ss. 44, 2(1)(f), 2(2), 49 – Enforcement of foreign award –
C
Dispute between appellant and respondent, two Indian companies,
wherein the respondent company, subsidiary of a French company
– Execution of settlement agreement by the parties which provided
for arbitration in Zurich in accordance with the Rules of Conciliation
and Arbitration of the International Chamber of Commerce – Parties
D agreeing to resolve the dispute by sole arbitrator appointed by the
ICC and the substantive law would be Indian law – Respondent
challenged the jurisdiction on the ground that two Indian parties
could not have chosen a foreign seat – However, the arbitrator
held that the arbitration clause in the Settlement agreement as valid
and governing law to be Swiss law because the seat of arbitration
E
was Zurich, Switzerland, though Mumbai was designated as the
venue – Final award passed in favour of respondent – Respondent
filed enforcement proceedings before the High Court while appellant
challenged the final award – High Court upheld the enforcement of
the arbitral award – On appeal, held: Seat of the arbitration remains
F Zurich, Switzerland and venue of the hearing would be Mumbai,
India – Closest connection test not applicable as seat was designated
by the parties and by the tribunal – Part I and Part II of the Act are
mutually exclusive – It cannot be said that proviso to s. 2(2) is a
bridge that joined Part II to Part I – Furthermore, disputes are
between two persons-two Indian companies, and the arbitration is
G
conducted at the seat designated by the parties, i.e. Zurich, being
in Switzerland, a signatory to the New York Convention – Context
of s. 44 is party-neutral, having reference to the place at which the
award is made – Elusive expression “public policy” appearing in s.
23 of the Contract Act is a relative concept capable of modification
H
532
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 533
CONVERSION INDIA PVT. LTD.
– There is nothing in either s. 23 or s. 28 which interdicts two Indian A
parties from getting their disputes arbitrated at a neutral forum
outside India – Effect is to be given to the party autonomy, being
the brooding and guiding spirit of arbitration – Plea that s. 10 of
the Commercial Courts Act would apply, and thus, impugned
judgment is to be set aside, as it was without jurisdiction, cannot be
B
accepted – Thus, two Indian parties can choose a foreign seat of
arbitration to which New York Convention applies and the award
passed by such forum is enforceable in India – Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, 1958 –
Contract Act, 1872 – ss. 23 and 28 – Commercial Courts, Commercial
Division and Commercial Appellate Division of High Courts Act, C
2015 – s. 10.
s. 44 – Foreign award – Meaning of – Necessary ingredients
– Explained.
s. 2(1)(f) – Expression “international commercial arbitration”
– Definition of. D
s. 28(1)(a) – Rules applicable to substance of dispute –
Interpretation of s. 28(1)(a) – Held: s. 28(1)(a) makes no reference
to an arbitration being conducted between two Indian parties in a
country other than India – It cannot be held to interdict two Indian
parties from resolving their disputes at a neutral forum in a country E
other than India.
Disposing of the appeal, the Court
HELD: 1.1 Clause 6 of the settlement agreement would
show that arbitration is to be resolved “in Zurich” in accordance F
with the Rules of Conciliation and Arbitration of the ICC. As per
this clause, Zurich was therefore, determined to be the juridical
seat of arbitration between the parties. At the Case Management
Conference, the arbitrator specifically decided that the venue of
the hearing shall be Mumbai, India and the seat of the arbitration
of course remains Zurich, Switzerland. This arrangement has been G
accepted by both parties. [Paras 7, 8][561-E-F; 562-C-E, F-G]
1.2 The closest connection test would only apply if it is
unclear that a seat has been designated either by the parties or
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534 SUPREME COURT REPORTS [2021] 4 S.C.R.
A by the tribunal. In this case, the seat has clearly been designated
both by the parties and by the tribunal, and has been accepted by
both the parties. Thus, it is not possible to accept the submission
that the seat of arbitration ought to be held to be Mumbai in the
facts of the instant case. [Paras 9, 10][562-H; 563-A, C]
B Enercon (India) Ltd. v. Enercon GmbH (2014) 5 SCC 1
: [2014] 2 SCR 855 – distinguished.
Mankastu Impex (P) Ltd. v. Airvisual Ltd. (2020) 5 SCC
399 - referred to.
2.1 The Arbitration and Conciliation Act, 1996 is in four
C parts. Part I deals with arbitrations where the seat is in India and
has no application to a foreign-seated arbitration. It is, therefore,
a complete code in dealing with appointment of arbitrators,
commencement of arbitration, making of an award and challenges
to the aforesaid award as well as execution of such awards. On
D the other hand, Part II is not concerned with the arbitral
proceedings at all. It is concerned only with the enforcement of a
foreign award, as defined, in India. Section 45 alone deals with
referring the parties to arbitration in the circumstances mentioned
therein. Barring this exception, in any case, Part II does not apply
to arbitral proceedings once commenced in a country outside
E India. [Para 11][563-D-F]
2.2 Even before the Arbitration Act of 1996, India, being
one of the earliest signatories to the New York Convention,
legislated in accordance therewith and enacted the Foreign Awards
Act in 1961. Under section 6 of the Foreign Awards Act, where
F the court is satisfied that the foreign award is enforceable, the
court shall order the award to be filed and shall proceed to
pronounce judgment according to the award. This provision has
since been done away with by the Arbitration Act, 1996 as section
49 of the Arbitration Act expressly provides that the award shall
G be deemed to be a decree of the court. Thereafter, section 7 of
the Foreign Awards Act enumerates grounds on which such foreign
award may be refused to be enforced. Obviously, under the earlier
regime, there was no overlap between the Arbitration Act, 1940,
which dealt only with domestic awards, and the Foreign Awards
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PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 535
CONVERSION INDIA PVT. LTD.
Act. This situation continues in the current Arbitration Act, Part A
I and Part II of which have been held to be mutually exclusive.
This being the case, it is a little difficult to accede to any submission
that would breach the wall between Parts I and II. The submission
that the proviso to section 2(2) of the Arbitration Act is a bridge
which connects the two parts is rejected. As a matter of fact,
B
section 2(2) specifically states that Part I applies only where
the place of arbitration is in India. It is settled law that a
proviso cannot travel beyond the main enacting provision.
[Paras 12, 13][563-F-G; 564-B-D; 567-G-H]
Bharat Aluminium Co. v. Kaiser Aluminium Technical
Services Inc. (2012) 9 SCC 552 : [2012] 12 SCR 327 C
– followed.
Union of India v. Dileep Kumar Singh (2015) 4 SCC
421 : [2015] 2 SCR 882; DMRC v. Tarun Pal Singh
(2018) 14 SCC 161 : [2017] 14 SCR 202; Kandla
Export Corpn. v. OCI Corpn. (2018) 14 SCC 715 : D
[2018] 1 SCR 915; Mavilayi Service Co-operative Bank
Ltd. v. Commissioner of Income Tax, Calicut 2021 SCC
OnLine SC 16 – relied on.
2.3 As a matter of fact, the reason for the insertion of the
proviso to section 2(2) by the Arbitration and Conciliation E
(Amendment) Act, 2015 was because the judgment in Bhatia
International’s case had muddied the waters by holding that
section 9 would apply to arbitrations which take place outside
India without any express provision to that effect. The judgment
in Bhatia’ s case has been expressly overruled by a five-Judge F
Bench in BALCO’s case. Pursuant thereto, a proviso has now
been inserted to section 2(2) which only makes it clear that where,
in an arbitration which takes place outside India, assets of one of
the parties are situated in India and interim orders are required
qua such assets, including preservation thereof, the courts in
India may pass such orders. It is important to note that the G
expression “international commercial arbitration” is specifically
spoken of in the context of a place of arbitration being outside
India, the consequence of which is an arbitral award to be made
in such place, but which is enforced and recognised under the
provisions of Part II of the Arbitration Act. The context of this H
536 SUPREME COURT REPORTS [2021] 4 S.C.R.
A expression is, therefore, different from the context of the
definition of “international commercial arbitration” contained in
Section 2(1)(f), which is in the context of such arbitration taking
place in India, which only applies “unless the context otherwise
requires”. The four sub-clauses contained in section 2(1)(f) would
make it clear that the definition of the expression “international
B
commercial arbitration” contained therein is party-centric in the
sense that at least one of the parties to the arbitration agreement
should, inter alia, be a person who is a national of or habitually
resident in any country other than India. On the other hand, when
“international commercial arbitration” is spoken of in the context
C of taking place outside India, it is place-centric as is provided by
section 44 of the Arbitration Act. This expression, therefore, only
means that it is an arbitration which takes place between two
parties in a territory outside India, the New York Convention
applying to such territory, thus making it an “international”
commercial arbitration. [Para 14][568-B-H]
D
Bharat Aluminium Co. v. Kaiser Aluminium Technical
Services Inc. (2012) 9 SCC 552 : [2012] 12 SCR 327;
Bhatia International v. Bulk Trading S.A. (2002) 4 SCC
105 : [2002] 2 SCR 411 – referred to.
E 3.1 Under section 44 of the Arbitration Act, a foreign award
is defined as meaning an arbitral award on differences between
persons arising out of legal relationships considered as
commercial under the law in force in India, in pursuance of an
agreement in writing for arbitration to which the New York
Convention applies, and in one of such territories as the Central
F Government, by notification, declares to be territories to which
the said Convention applies. Thus, what is necessary for an award
to be designated as a foreign award under section 44 are four
ingredients: the dispute must be considered to be a commercial
dispute under the law in force in India, it must be made in
G pursuance of an agreement in writing for arbitration, it must be
disputes that arise between “persons” (without regard to their
nationality, residence, or domicile), and the arbitration must be
conducted in a country which is a signatory to the New York
Convention. Ingredient (i) is undoubtedly satisfied on the facts
of this case. Ingredient (ii) is satisfied given clause 6 of the
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PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 537
CONVERSION INDIA PVT. LTD.
settlement agreement. Ingredients (iii) and (iv) are also satisfied A
on the facts of this case as the disputes are between two persons,
i.e. two Indian companies, and the arbitration is conducted at the
seat designated by the parties, i.e. Zurich, being in Switzerland, a
signatory to the New York Convention. [Para 21][574-B-G]
3.2 The context of section 44 is party-neutral, having B
reference to the place at which the award is made. For this reason,
it is not possible to accede to the submission that the very basis
of section 44 should be altered when two Indian nationals have
their disputes resolved in a country outside India; and that the
expression “unless the context otherwise requires” can be held
to undo the very basis of section 44 by converting it from a seat- C
oriented provision in countries that are signatories to the New
York Convention to a person- oriented provision in which one of
the parties to the arbitration agreement has to be a foreign national
or habitually resident outside India. In any case, the context of
section 44 is very far removed from the context of an international D
commercial arbitration in Part I which is defined for the purposes
of section 11, section 28, section 29A(1), section 34(2A), and
section 43I, all of which occur in Part I and deal with arbitrations
which take place in India. Also, the submission of the appellant
would involve bodily importing the expression “international
commercial arbitration” into section 44, which cannot be done E
because of the opening words of section 44, “In this Chapter”
which is Chapter I of Part II, and then applying the definition
contained in section 2(1)(f) of the Arbitration Act which, being
restricted to Part I, must now be applied to Part II. No canon of
interpretation would permit acceptance of such a submission. A F
foreign award cannot be refused to be enforced merely because
it was made between two Indian parties, under pari materia
provisions of the Foreign Awards Act. This Court cannot accede
to the submission that Atlas’s case cannot be regarded as an
authority for the proposition that sections 23 and 28 of the Contract
Act are out of harm’s way when it comes to enforcing a foreign G
award under the Foreign Awards Act, 1961, where both parties
are Indian companies. [Paras 25, 26, 28 and 30][579-B-C;
580-C-F; 583-A-B; 584-F-G]
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538 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Atlas Export Industries v. Kotak & Co. (1999) 7 SCC
61 : [1999] 2 Suppl. SCR 192 – relied on.
Vanguard Fire and General Insurance Co. Ltd. v. Fraser
and Ross [1960] 3 SCR 857; Bennett Coleman & Co.
(P) Ltd. v. Punya Priya Das Gupta (1969) 2 SCC 1 :
B [1970] 1 SCR 181; Allied Motors (P) Ltd. v. CIT (1997)
3 SCC 472 : [1997] 2 SCR 780; S.K. Gupta v. K.P.
Jain (1979) 3 SCC 54 : [1979] 2 SCR 1184; State of
Gujarat v. Manoharsinhji Pradyumansinhji Jadeja
(2013) 2 SCC 300 : [2012] 11 SCR 507; Shayara Bano
v. Union of India (2017) 9 SCC 1: [2017] 9 SCR 797
C – referred to.
Jacobs v. London County Council (1950) 1 All ER 737
– referred to.
3.3 Under U.S. law, an arbitration agreement or award made
D between two U.S. citizens shall not fall under the New York
Convention unless such relationship involves properties located
abroad, envisages performance of a contract, entered in the U.S.,
to take place abroad, or has some reasonable connection with
one or more foreign states. No such caveat is entered when India
acceded to the New York Convention and enacted the Foreign
E Awards Act and the Arbitration Act, 1996. On the contrary,
“persons” mentioned in section 44 has no reference to nationality,
residence or domicile. This is another important pointer to the
fact that, unlike the U.S. Code, section 44 of the Arbitration
Act does not enter any such caveat. [Paras 31, 32][584-G-H;
F 585-A, D-E]
3.4 Once it is found that parties by mutual agreement have
decided to resolve their dispute by arbitration and when they, on
their own, chose to have the seat of arbitration in a foreign country,
then in view of the provisions of s. 2(2) of the Act of 1996, Part I
G of the Act, will not apply in a case where the place of arbitration is
not India and if Part I does not apply and if the agreement in
question fulfils the requirement of s. 44 then Part II will apply
and when Part II applies and it is found that agreement is not null
or void or inoperative, the bar created under s. 45 would come
into play and if bar created under s. 45 comes into play then it is
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PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 539
CONVERSION INDIA PVT. LTD.
a case where the Court below had no option but to refer the A
parties for arbitration as the bar under s. 45 would also apply and
the suit itself was not maintainable. [Para 33][594-A-D]
State of West Bengal v. Associated Contractors (2015)
1 SCC 32 : [2014] 10 SCR 426 – relied on.
Sasan Power Limited v. North American Coal B
Corporation (India) Pvt. Ltd. 2015 SCC OnLine MP
7417 – approved.
TDM Infrastructure (P) Ltd. v. UE Development India
(P) Ltd. (2008) 14 SCC 271 : [2008] 8 SCR 775 –
overruled. C
Seven Islands Shipping Ltd. v. Sah Petroleums Ltd.
(2012) 5 Mah LJ 822; M/s. Addhar Mercantile Pvt.
Ltd. v. Shree Jagadamba Agrico Exports Pvt. Ltd.
Arbitration Application No. 197 of 2014 (decided on
12.06.2015) – disapproved. D
Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. (2011) 8
SCC 333 : [2011] 11 SCR 1; GMR Energy Limited v.
Doosan Power Systems India CS (COMM) 447/2017
(decided on 14.11.2017; Dholi Spintex v. Louis Dreyfus
CS (COMM) 286/2020 (decided on 24.11.2020) – E
referred to.
“New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards” by Professor
Pieter Sanders (Netherlands International Law Review,
Volume 6, Issue 1, March 1959); “International F
Commercial Arbitration” by Gary B. Born (Wolters
Kluwer, 3rd Edn., 2021) – referred to.
4.1 The appellant’s submission that even if Atlas’s case is
to be taken to be a binding precedent, it contains no discussion
on how section 23 of the Contract Act is not infracted and does G
not, in any case, deal with the submission based on section
28(1)(a) and section 34(2A) of the Arbitration Act. The elusive
expression “public policy” appearing in section 23 of the Contract
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540 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Act is a relative concept capable of modification in tune with
the strides made by mankind in science and law. [Paras 38,
39][602-C-D; 603-C-D]
4.2 Freedom of contract needs to be balanced with clear
and undeniable harm to the public, even if the facts of a particular
B case do not fall within the crystallised principles enumerated in
well-established ‘heads’ of public policy. The question that then
arises is whether there is anything in the public policy of India,
as so understood, which interdicts the party autonomy of two
Indian persons referring their disputes to arbitration at a neutral
forum outside India. [Para 49][612-F-G]
C
Atlas Export Industries v. Kotak & Co. (1999) 7 SCC
61 : [1999] 2 Suppl. SCR 192; Gherulal Parakh v.
Mahadeodas Maiya [1959] Supp 2 SCR 406;
Murlidhar Aggarwal v. State of U.P. (1974) 2 SCC 472
: [1975] 1 SCR 575; Union of India v. Gopal Chandra
D Misra (1978) 2 SCC 301 : [1978] 3 SCR 12; Central
Inland Water Transport Corpn. v. Brojo Nath Ganguly
(1986) 3 SCC 156 : [1986] 2 SCR 278; Rattan Chand
Hira Chand v. Askar Nawaz Jung (1991) 3 SCC 67 :
[1991] 1 SCR 327; Renusagar Power Co. Ltd. v.
E General Electric Co. 1994 Supp (1) SCC 644 : [1993]
3 Suppl. SCR 22; Zoroastrian Coop. Housing Society
Ltd. v. District Registrar, Coop. Societies (Urban) (2005)
5 SCC 632 : [2005] 3 SCR 592; State of Rajasthan v.
Basant Nahata (2005) 12 SCC 77 : [2005] 3 Suppl.
SCR 1; Vodafone International Holdings BV v. Union
F of India (2012) 6 SCC 613:[2012] 1 SCR 573 –
referred to.
Maxim Nordenfelt Guns and Ammunition Company v.
Nordenfelt [1893] 1 Ch. 630 – referred to.
G 4.3 It can be seen that exception 1 to section 28 of the
Contract Act specifically saves the arbitration of disputes between
two persons without reference to the nationality of persons who
may resort to arbitration. It is for this reason that this Court in
Atlas’s case referred to the said exception to section 28 and found
that there is nothing in either section 23 or section 28 which
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PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 541
CONVERSION INDIA PVT. LTD.
interdicts two Indian parties from getting their disputes arbitrated A
at a neutral forum outside India. [Para 50][612-G-H; 613-A]
4.4 The submission by the appellant, with specific reference
to section 28(1)(a) and section 34(2A) of the Arbitration Act, that
since two Indian parties cannot opt out of the substantive law of
India and therefore, ought to be confined to arbitrations in India, B
Indian public policy, as reflected in these two sections, ought to
prevail, cannot be accepted. It will be seen that section 28(1)(a)
of the Arbitration Act, when read with section 2(2), section 2(6)
and section 4, only makes it clear that where the place of arbitration
is situated in India, in an arbitration other than an international
commercial arbitration (i.e. an arbitration where none of the C
parties, inter alia, happens to be a national of a foreign country or
habitually resident in a foreign country), the arbitral tribunal shall
decide the dispute in accordance with the substantive law for the
time being in force in India. [Para 51][613-A-D]
4.5 Section 28(1)(a) of the Arbitration Act makes no D
reference to an arbitration being conducted between two Indian
parties in a country other than India, and cannot be held, by some
tortuous process of reasoning, to interdict two Indian parties from
resolving their disputes at a neutral forum in a country other
than India. [Para 52][613-D-E] E
4.6 Any dispute between Indian national who is habitually
resident in a country outside India and an Indian national who is
habitually resident in India would attract the provisions of section
2(1)(f)(i) and, consequently, section 28(1)(b) of the Arbitration
Act, in which case two Indian nationals would be entitled to have F
their dispute decided in India in accordance with the rules of law
designated by the parties as applicable to the substance of the
dispute, which need not be Indian law. This, by itself, is a strong
indicator that section 28 of the Arbitration Act cannot be read in
the manner suggested by the appellant. [Para 53][613-E-F]
G
4.7 It will be seen that where the law of India prohibits a
certain act, the conflict of law rules as set down in Dicey’s
authoritative treatise will take care of this situation in most cases
as the arbitrators would then apply these rules on the ground of
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542 SUPREME COURT REPORTS [2021] 4 S.C.R.
A international comity between nations in cases which arise between
two Indian nationals in an award made outside India, which would
fall within the definition of “foreign award” under Section 44 of
the 1996 Act. [Para 57][620-G-H]
Foster v. Driscoll 1929 1 Kings Bench 470; Regazzoni
B v. KC Sethia [1958] A.C. 301 – referred to.
Dicey, Morris and Collins on the Conflict of Laws
(Sweet & Maxwell, 15th Edn.) – referred to.
4.8 Even otherwise, a ground may be made out under section
48 against enforcement of a foreign award where enforcement of
C such award would be contrary to the public policy of India. If, on
the facts of a given case, it is found that two Indian nationals have
circumvented a law which pertains to the fundamental policy of
India, such foreign award may then not be enforced under section
48(2)(b) of the Arbitration Act. On the assumption that the
D example of the Benami Transactions Act pertains to the
fundamental policy of Indian law, if the foreign award is contrary
to such fundamental policy, such award will then not be enforced
in India. [Para 58][621-A-C]
4.9 When it comes to the ground raised under section
E 34(2A) of the Arbitration Act, it is clear that in an international
commercial arbitration, say, between an Indian national habitually
resident outside India and an Indian national resident in India,
even when the arbitration takes place in India resulting in an
award being made in India, the ground available under section
34(2A) would not be available, as it would not apply to an
F international commercial arbitration held in India. In agreeing to
a neutral forum outside India, parties agree that instead of one
bite at the cherry under section 34 of the Arbitration Act, where
an arbitration between two Indian nationals is conducted in India
[with the grounds for setting aside the award being available under
G section 34(2A)], what is instead put in place by the parties is two
bites at the cherry, namely, the recourse to a court or tribunal in
a country outside India for setting aside the arbitral award passed
in that country on grounds available in that country (which may
be wider than the grounds available under section 34 of the
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PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 543
CONVERSION INDIA PVT. LTD.
Arbitration Act), and then resisting enforcement under the A
grounds mentioned in section 48 of the Arbitration Act. The
balancing act between freedom of contract and clear and
undeniable harm to the public must be resolved in favour of
freedom of contract as there is no clear and undeniable harm
caused to the public in permitting two Indian nationals to avail of
B
a challenge procedure of a foreign county when, after a foreign
award passes muster under that procedure, its enforcement can
be resisted in India on the grounds contained in section 48 of the
Arbitration Act, which includes the foreign award being contrary
to the public policy of India. [Para 59][621-C-G]
5. The decks have now been cleared to give effect to party C
autonomy in arbitration. Party autonomy has been held to be the
brooding and guiding spirit of arbitration. Nothing stands in
the way of party autonomy in designating a seat of arbitration
outside India even when both parties happen to be Indian
nationals. [Paras 60, 61][621-G-H; 622-A; 627-E-F] D
Bharat Aluminium Co. v. Kaiser Aluminium Technical
Services Inc. (2016) 4 SCC 126 : [2016] 1 SCR 364;
Centrotrade Minerals & Metal Inc. v. Hindustan Copper
Ltd. (2017) 2 SCC 228 : [2016] 9 SCR 83 – relied on.
6.1 The appellant relied upon section 10 read with section E
21 of the Commercial Courts Act to argue that in all cases between
Indian nationals which result in awards delivered in a country
outside India, section 10(3) would apply, as a result of which the
impugned judgment having been made by a High Court, is made
without jurisdiction, cannot be accepted. It must be remembered F
that when a foreign award is sought to be enforced under Part II
of the Arbitration Act, the explanation to section 47 makes it
clear that it is the High Court alone which is the court on whose
doors the applicant must knock. This is sought to be answered
by the appellant by stating that since the explanation to section
47 is in direct collision with section 10(3) of the Commercial G
Courts Act, vide section 21 of the Commercial Courts Act, section
10(3) would prevail over the explanation to section 47. [Paras
62, 63, 69][627-F-G; 628-G-H; 632-D-E]
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544 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 6.2 Section 2(1)(f) of the Arbitration Act which defines the
expression “international commercial arbitration” is only for a
limited purpose, namely, for the purpose of Part I of the Arbitration
Act. Under section 2(2) of the Commercial Courts Act, words
and expressions used and not defined in the Commercial Courts
Act but defined in the CPC and the Evidence Act, 1872 shall
B
have the same meanings respectively assigned to them in that
Code and the Act. Conspicuous by its absence are definitions
contained in the Arbitration Act. [Para 64][629-B-C]
6.3 “International commercial arbitration”, when used in
the proviso to section 2(2) of the Arbitration Act, does not refer
C to the definition contained in section 2(1)(f) but would have
reference to arbitrations which take place outside India, awards
made in such arbitrations being enforceable under Part II of the
Arbitration Act. It will be noted that section 10(1) applies to
international commercial arbitrations, and applications or appeals
D arising therefrom, under both Parts I and II of the Arbitration
Act. When applications or appeals arise out of such arbitrations
under Part I, where the place of arbitration is in India,
undoubtedly, the definition of “international commercial
arbitration” in section 2(1)(f) will govern. However, when applied
to Part II, “international commercial arbitration” has reference
E to a place of arbitration which is international in the sense of the
arbitration taking place outside India. Thus construed, there is
no clash at all between section 10 of the Commercial Courts Act
and the explanation to section 47 of the Arbitration Act, as an
arbitration resulting in a foreign award, as defined under section
F 44 of the Arbitration Act, will be enforceable only in a High Court
under section 10(1) of the Commercial Courts Act, and not
in a district court under section 10(2) or section 10(3).
[Para 66][629-D-G]
6.4 The substantive law as to appeals and applications is
G laid down in the Arbitration Act whereas the procedure governing
the same is laid down in the Commercial Courts Act. In this
context, it has also been held that the Arbitration Act is a special
Act vis-à-vis the Commercial Courts Act which is general, and
which applies to the procedure governing appeals and applications
in cases other than arbitrations as well. It is interesting to note
H
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 545
CONVERSION INDIA PVT. LTD.
that the Arbitration and Conciliation (Amendment) Act, 2015 and A
the Commercial Courts Act, 2015, both came into effect from
23.10.2015. It has been held that even a later general law which
contains a non-obstante clause does not override a special law as
both must be held to operate. [Paras 67, 68][629-G-H; 630-A-B;
631-D-E]
B
BGS SGS SOMA JV v. NHPC (2020) 4 SCC 234; Kandla
Export Corpn. v. OCI Corpn. (2018) 14 SCC 715 :
[2018] 1 SCR 915; R.S. Raghunath v. State of
Karnataka, (1992) 1 SCC 335 : [1991] 1 Suppl. SCR
387 – referred to.
C
7.1 The respondent, by way of cross objection, challenged
the finding of the Gujarat High Court by the impugned judgment
that the section 9 application was not maintainable by reason of
the expression “international commercial arbitration” appearing
in the proviso to section 2(2) having the meaning to be ascribed
by section 2(1)(f) of the Arbitration Act. This view of the law is D
incorrect. Consequently, this part of the judgment is set aside, it
being held that the application made by the respondent under
section 9 would be maintainable. [Para 70][632-E-G]
7.2 The impugned judgment of the High Court is upheld,
except for the finding on the s. 9 application of the respondent E
being held to be non-maintainable. [Para 71][632-G]
Sasan Power Ltd. v. North American Coal Corporation
(India) Pvt. Ltd. (2016) 10 SCC 813 : [2016] 6 SCR
809 – referred to.
F
Case Law Reference
[2016] 6 SCR 809 referred to Para 4.4
(2020) 5 SCC 399 referred to Para 7
[2014] 2 SCR 855 distinguished Para 9
G
[2012] 12 SCR 327 followed Para 12, 14
[2015] 2 SCR 882 relied on Para 13
[2017] 14 SCR 202 relied on Para 13
H
546 SUPREME COURT REPORTS [2021] 4 S.C.R.
A [2018] 1 SCR 915 relied on Para 13
[2002] 2 SCR 411 referred to Para 14
[2012] 12 SCR 327 referred to Para 14
[1960] 3 SCR 857 referred to Para 24(i)
B [1970] 1 SCR 181 referred to Para 24(ii)
[1997] 2 SCR 780 referred to Para 24(iii)
[1979] 2 SCR 1184 referred to Para 25
[1999] 2 Suppl. SCR 192 relied on Para 28
C
[2012] 11 SCR 507 referred to Para 29
[2017] 9 SCR 797 referred to Para 29
[1999] 2 Suppl. SCR 192 referred to Para 30, 38
[2011] 11 SCR 1 referred to Para 33
D
[2014] 10 SCR 426 relied on Para 33
[2008] 8 SCR 775 overruled Para 33
(2012) 5 Mah LJ 822 disapproved Para 36
[1959] Supp 2 SCR 406 referred to Para 40
E
[1975] 1 SCR 575 referred to Para 41
[1978] 3 SCR 12 referred to Para 42
[1986] 2 SCR 278 referred to Para 43
F [1991] 1 SCR 327 referred to Para 44
[1993] 3 Suppl. SCR 22 referred to Para 45
[2005] 3 SCR 592 referred to Para 46
[2005] 3 Suppl. SCR 1 referred to Para 47
G [2012] 1 SCR 573 referred to Para 48
[2016] 1 SCR 364 relied on Para 60
[2016] 9 SCR 83 relied on Para 61
H
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 547
CONVERSION INDIA PVT. LTD.
(2020) 4 SCC 234 referred to Para 67 A
[2018] 1 SCR 915 referred to Para 67
[1991] 1 Suppl. SCR 387 referred to Para 62
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1647
of 2021. B
From the Judgment and Order dated 03.11.2020 of the High Court
of Gujarat at Ahmedabad in Petition under Arbitration Act No. 131 of
2019.
Tushar Hemani, Sr. Adv., Dhaval Shah, Sharvil Pathak, Unmesh
Shukla, Ms. Aditi Sheth, Ms. Anushree Prashit Kapadia, Adv. for the C
Appellant.
Nakul Dewan, Sr. Adv., Ms. Shaheen Parikh, Ms. Shalaka Patil,
Surya Karan Sambyal, Rahul Mantri, Ms. Anushka Shah, Sambit Nanda
for M/S. Cyril Amarchand Mangaldas, Advs. for the Respondent.
D
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
1. Leave granted.
2. The present appeal raises an interesting question – as to whether
two companies incorporated in India can choose a forum for arbitration E
outside India – and whether an award made at such forum outside India,
to which the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, 1958 [“New York Convention”] applies, can be said
to be a “foreign award” under Part II of the Arbitration and Conciliation
Act, 1996 [“ArbitrationAct”] and be enforceable as such. F
Factual Background
3.1. The appellant is a company incorporated under the Companies
Act, 1956 with its registered office at Ahmedabad, Gujarat. The
respondent is a company incorporated under the Companies Act, 1956
with its registered office at Chennai, Tamil Nadu, and is a 99% subsidiary G
of General Electric Conversion International SAS, France, which in turn
is a subsidiary of the General Electric Company, United States.
3.2. In 2010, the appellant issued three purchase orders to the
respondent for supply of certain converters. Pursuant to these purchase
orders, the respondent supplied six converters to the appellant. Disputes H
548 SUPREME COURT REPORTS [2021] 4 S.C.R.
A arose between the parties in relation to the expiry of the warranty of the
said converters. In order to resolve these disputes, the parties entered
into a settlement agreement dated 23.12.2014. Under clauses 5.1 and
5.2 of the settlement agreement, the respondent agreed to provide certain
delta modules along with warranties on these modules for the working
of the converter panel. Clause 6 of the settlement agreement contained
B
the dispute resolution clause which reads as follows:
“6. Governing Law and Settlement of Dispute
6.1 Any dispute or difference arising out of or relating to this
agreement shall be resolved by the Parties in an amicable way.
C (A minimum of 60 days shall be used for resolving the dispute in
amicable way before same can be referred toarbitration).
6.2 In case no settlement can be reached through negotiations, all
disputes, controversies or differences shall be referred to and finally
resolved by Arbitration in Zurich in the English language, in
D accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce, which Rules are deemed
to be incorporated by reference into this clause. The Arbitration
Award shall be final and binding on both the parties.
6.3 The Agreement (together with any documents referred to
E herein) constitutes the whole agreement between the Parties and
it is hereby expressly declared that no variation and / or
amendments hereof be effective unless mutually agreed upon and
made in writing.”
3.3. Disputes arose between the parties pursuant to the settlement
F agreement whereby the appellant claimed that warranties that were
supposed to be given for converters were not so given, whereas the
respondent argued that the warranties covered only the delta modules
and not the converters. Thus, on 03.07.2017, the appellant issued a request
for arbitration to the International Chamber of Commerce [“ICC”]. On
18.08.2017, the parties agreed to resolution of disputes by the sole
G arbitrator appointed by the ICC. It was agreed between the parties, as
was reflected in the request for arbitration and in the terms of reference
to arbitration, that the substantive law applicable to the dispute would be
Indian law.
3.4. The respondent filed a preliminary application challenging
H the jurisdiction of the arbitrator on the ground that two Indian parties
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 549
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
could not have chosen a foreign seat of arbitration. Importantly, the A
appellant opposed the said application and asserted that there was no
bar in law from this being done. By Procedural Order No.3 dated
20.02.2018, the learned sole arbitrator, Mr. Ian Leonard Meakin, dismissed
the respondent’s preliminary application, holding as follows:
“The Tribunal finds that two Indian parties can arbitrate outside B
India. The Tribunal is persuaded that the Supreme Court of India’s
decision in Reliance Industries Ltd v. Union of India (2014)7
SCC 603 (Exhibit CLM-3) is a leading authority. This has been
confirmed by the Supreme Court of India in Sasan Power Limited
v. North American Coal Corporation India Private Limited
(2016) 10 SCC 813 (RL-6), which at an earlier instance before C
the High Court of Madhya Pradesh 2016 (2) ARBLR 179 (MP),
rendered on 11.09.2015, held that two Indiancompanies can
arbitrate outside of India.
Furthermore, the earlier case of Atlas Export Industries v. Kotak
& Company (1999) 7 SCC 61,which was applied in Sasan, found D
that a contract which is unlawful under section 23 of theIndian
Contract Act 1872, because it breaches Indian public policy, would
be void but that” merely because the arbitrators are situated in
a foreign country cannot by itself be enough to nullify the
arbitration agreement when the parties have with their eyes E
open willingly entered into the agreement” (p.65, para f of
judgment). Such is the case here where the parties freely agreed
on Zurich as the seat of the arbitration.
This position has been followed in a recent decision of the Delhi
High Court in GMR Energy Ltd. v. Doosan Power Systems India F
Pvt. Ltd. on 14 November 2017 CS (Comm) 447/2017 (RL-7)
applying Atlas in allowing two Indian parties to arbitrate outside
India. The Tribunal notes the Respondent’s contention that this
case is “expected to be appealed” (Respondent’s Preliminary
Application dated 9 December 2017, para 23) but the Tribunal
must deal with the law as it finds it at present and no doubt the G
Final Award in the present case will precede any exhaustive appeal
in India in GMR.
Respondent’s pleadings in reliance, inter alia, on TDM
Infrastructure Private Limited v. UED evelopment India
H
550 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Private Limited (2008) 14 SCC 271 are, in the Tribunal’s finding,
misplaced because although it is accepted that two Indian nationals
should, as a matter of Indian law, not be permitted to derogate
from Indian substantive law, this being part of the public policy of
the country, this fails to distinguish between the lex arbitri and
the lex causae. In the present case,the parties have not chosen a
B
foreign substantive law, only a foreign seat.
The Respondent also relied on M/s Addhar Mercantile Private
Limited v. Shree Jagadamba Agrico Exports Pvt. Ltd. (2015)
SCC Online Bom 7752, which the Respondent submitted followed
TDM (RL-4). However, although the Tribunal is aware that this
C decision has been criticised because although the court did not
expressly find that two parties could not opt for arbitration outside
India, the court’s finding that Indian parties cannot derogate from
Indian lawbecause that would violate Indian public policy has led
to the judgment being interpreted wrongly to imply that Indian
D parties cannot choose a foreign seat. That said, Addhar is in any
event a first instance decision and the higher authorities of the
Indian Supreme Court prevail.
Finally, the cases of Enercon (India) Limited v. Enercon GMBH
(2014) 5SCC 1 and Bharat Aluminium Co. v. Kaiser Aluminium
E Inc. (2012) 9 SCC 552 relied on by the Respondent in relation to
its submissions that the closest and most real connection test under
Indian law do not assist the Respondent because that test is only
relevant where the seat is unclear. Moreover, Bharat clearly held
that the applicability of section 28 of the Indian Act is restricted to
the substantive law of the contract and does not apply to the seat
F of the arbitration.
Conclusion
For the reasons set out above, the Tribunal therefore finds that
the arbitration clause in the Settlement Agreement is valid and
G will proceed to apply the Swiss Act because the seat of the
arbitration is Zurich, Switzerland.”
3.5. This procedural order was not challenged by either of the
parties. Vide the said procedural order, the seat of the arbitration was
stated to be Zurich, Switzerland. The respondent suggested Mumbai,
India as a convenient venue in which to hold arbitration proceedings as
H
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 551
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
costs would be reduced thereby. The appellant objected to this suggestion. A
At the Case Management Conference dated 28.06.2018, the learned
arbitrator decided that though the seat is in Zurich, all hearings will be
held in Mumbai, acceding to the application made by the respondent.
Since the mountain did not come to Muhammad, Muhammad, in the
form of the learned arbitrator, went to the mountain and held all sittings
B
at the convenient venue in Mumbai.
3.6 A final award dated 18.04.2019 was passed by the learned
arbitrator in which the appellant’s claim was rejected. The learned
arbitrator held:
“Operative Part C
227. Based on the foregoing, the Arbitral Tribunal hereby finds,
holds and orders:
Preliminary Issues
A. The seat of the arbitration is Zurich, Switzerland. D
On the Merits
B. The Claimant’s claims for breach of contract, damages and
interest thereon are rejected.
C. The Claimant shall pay to the Respondent INR
25,976,330.00 and US$ 40,000.00 in legal costs and E
expenses with accumulated interest, if any, inaccordance
with the Indian Interest Act, 1978.
D. All other claims of either party, to the extent thatthey exist,
are dismissed.
F
Made in Zurich, this 18th day of April 2019"
3.7. After the passing of the final award, the respondent called
upon the appellant to pay the amounts granted vide the said award. As
the appellant failed to oblige, the respondent initiated enforcement
proceedings under sections 47 and 49 of the Arbitration Act before the G
High Court of Gujarat, within whose jurisdiction the assets of the appellant
were located. At this stage, the appellant did a complete volte-face and
asserted that the seat of arbitration was really Mumbai, where all the
hearings of the arbitral proceedings took place. So asserting, the appellant
filed proceedings challenging the said final award under section 34 of
H
552 SUPREME COURT REPORTS [2021] 4 S.C.R.
A the Arbitration Act, being CMA No.18 of 2019 before the Small Causes
Court, Ahmedabad which was then transferred to the Commercial Court,
Ahmedabad and renumbered as CMA No.76 of 2020. An application
filed under Order 7 Rule 11 of the Code of Civil Procedure, 1908 [“CPC”]
by the respondent was rejected by the Commercial Court, Ahmedabad.
At present, the proceedings under section 34 of the Arbitration Act and
B
the respondent’s application under Order 21 of the CPC for execution
of the final award are at a standstill in view of the appeal before us.
The Appellant’s Case:
4.1. Mr. Tushar Himani, learned Senior Advocate appearing on
C behalf of the appellant, argued that two Indian parties cannot designate
a seat of arbitration outside India as doing so would be contrary to section
23 of the Indian Contract Act, 1872 [“ContractAct”] read with section
28(1)(a) and section 34(2A) of the Arbitration Act. To buttress this
submission, Mr. Himani pointed out the provisions of the Prohibition of
Benami Property Transactions Act, 1988 [“Benami Transactions Act”]
D which cannot be bypassed if two Indians are to apply only the substantive
law of India. However, by designating a seat outside India, it is open to
two Indian parties to opt out of the substantive law of India which itself
would be contrary to the public policy of India.
4.2. He then argued that foreign awards contemplated under Part
E II of the Arbitration Act arise only from international commercial
arbitrations. “International commercial arbitration”, as has been defined
in section 2(1)(f) of the Arbitration Act, would make it clear that there
has to be a foreign element when parties arbitrate outside India, the
foreign element being that at least one of the parties is, inter alia, a
F national of a country other than India, or habitually resident in a country
other than India, or a body corporate incorporated outside India. For this
reason, the award passed in the present case cannot be designated as a
foreign award under Part II of the Arbitration Act. To buttress this
submission, he relied heavily upon the judgment of a learned Single Judge
of this Court in TDM Infrastructure (P) Ltd. v. UE Development
G India (P) Ltd., (2008) 14 SCC 271 [“TDM”] and two judgments of the
Bombay High Court.
4.3. He then sought to distinguish this Court’s judgment in Atlas
Export Industries v. Kotak & Co., (1999) 7 SCC 61 [“Atlas
Export”], arguing that the specific argument made under section 23 of
H
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 553
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
the Contract Act was not dealt with by the Court and that, in any case, A
ultimately, the Court did not allow the appellant in that case to take up
this plea as it had not been taken up in the courts below.
4.4. Mr. Himani also argued that the judgment of the Madhya
Pradesh High Court in Sasan Power Limited v. North American
Coal Corporation (India) Pvt. Ltd., 2015 SCC OnLine MP 7417 B
[“Sasan I”], which decided that two Indian parties can choose a foreign
seat outside India for the purpose of resolving their disputes, was based
on an incorrect appreciation of facts, as observed in the appeal to the
Supreme Court in Sasan Power Ltd. v. North American Coal
Corporation (India) Pvt. Ltd., (2016) 10 SCC 813 [“Sasan II”].
C
4.5. Going to the language of section 44 of the Arbitration Act,
Mr. Himani stressed upon the expression “unless the context otherwise
requires” and cited several judgments to show that the context of section
44 is that of an international commercial arbitration and cannot, therefore,
apply to a foreign award between two Indian parties without the
involvement of a foreign element. He also relied heavily upon the 246th D
Report of the Law Commission of India of August 2014 which
recommended amendments to the Arbitration Act, and particularly, the
substitution of section 2(1)(e) and the explanation to section 47. He
stressed the fact that both these amendments were necessary to ensure
that it is the High Court that exercises jurisdiction in all cases of E
international commercial arbitration. For this purpose, he relied upon the
domestic arbitration law of the United States [“U.S.”] to show that even
under the said law, it is only when an agreement or award between two
U.S. citizens involves some foreign element that such arbitration can
take place abroad. He buttressed these submissions by referring to the
proviso to section 2(2) of the Arbitration Act which, according to him, F
furnished a bridge that joined Part II to Part I, as a result of which it
became clear that section 44 refers only to international commercial
arbitrations, as is stated in the proviso to section 2(2).
4.6. He then went on to argue that the Arbitration Act is a self-
contained code, as has been held by several judgments of this Court, and G
that when there is no foreign element involved in an award made in
Zurich between two Indian companies, such award cannot be the subject
matter of challenge or enforcement either under Part I or Part II of the
Arbitration Act.
H
554 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 4.7. Mr. Himani then relied heavily upon section 10 of the
Commercial Courts, Commercial Division and Commercial Appellate
Division of High Courts Act, 2015 [“Commercial Courts Act”] which
also recognises only two categories of arbitrations – international
commercial arbitration and other than international commercial
arbitration. He argued that there is a head-on conflict between section
B
10(3) of the Commercial Courts Act and section 47 of the Arbitration
Act, as a result of which the former must prevail. For this purpose, he
relied upon the non-obstante clause in section 21 of the Commercial
Courts Act. This being the case, in any case, the impugned judgment
made by the Gujarat High Court has to be set aside as it was made
C without jurisdiction because even as per the impugned judgment, the
present is not a case of an international commercial arbitration but instead
falls under the second category of “other than international commercial
arbitration”, as a result of which only the district court would have
jurisdiction.
D 4.8. He finally argued that going by the closest connection test,
the seat of arbitration can only be held to be Mumbai, and for this purpose,
he relied upon Enercon (India) Ltd. v. Enercon GmbH, (2014) 5
SCC 1 [“Enercon”]. According to him, since every factor connected
the arbitration in the present case to India, with no foreign element
involved, applying this test, the seat would necessarily be Mumbai.
E Consequently, he argued that Zurich, at best, could be stated to be a
“salutary seat”. This being so, obviously Part II of the Arbitration Act
would not apply and the judgment has to be set aside on this score also.
Despite the fact that in the written submissions before us, Mr. Himani
argued, without prejudice, that the award would not be enforceable under
F section 48 of the Arbitration Act, he very fairly did not press this issue.
The Respondent’s Case:
5.1. Mr. Nakul Dewan, learned Senior Advocate appearing on
behalf of the respondent, first pointed out that the appellant argued the
exact opposite of what it itself sought under Procedural Order No.3
G dated 20.02.2018 before the arbitrator. Having argued that two Indian
companies can agree to have a seat of arbitration outside India, and that
in the present case, that seat was Zurich, and having opposed any hearings
being held in Mumbai, it would now not be open to the appellant to argue
the exact opposite before this Court only because the final award was
H made against it.
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 555
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
5.2. Mr. Dewan then argued that Part I and Part II of the A
Arbitration Act have been held to be mutually exclusive and pointed out
the fundamental fallacy contained in the argument of Mr. Himani to try
and import the definition of international commercial arbitration from
Part I of the Arbitration Act into section 44 via the expression “unless
the context otherwise requires” contained in section 44, and the so-
B
called bridge between Parts I and II contained in the proviso to section
2(2). According to him, section 44 is modelled on the New York
Convention which only requires “persons”, both of whom can be Indian,
having disputes arising out of commercial legal relationships, which are
to be decided in the territory of a State outside India, which State is a
signatory to the New York Convention. He then argued that any attempt C
to breach the wall created between Part I and Part II, which have been
held to be mutually exclusive in Bharat Aluminium Co. v. Kaiser
Aluminium Technical Services Inc., (2012) 9 SCC 552 [“BALCO”],
cannot be countenanced by this Court.
5.3. He further argued that unlike the definition of “international D
commercial arbitration” contained in section 2(1)(f) in Part I, nationality,
domicile or residence of parties is irrelevant for the purpose of applicability
of section 44 of the Arbitration Act. As a matter of fact, according to
the learned Senior Advocate, this is no longer res integra as it has been
expressly decided under the pari materia provisions of the Foreign
Awards (Recognition and Enforcement) Act, 1961 [“Foreign Awards E
Act”] in Atlas (supra) that two Indian parties can enter into an arbitration
agreement with a seat outside India, which would result in an award that
would then have to be enforced as a foreign award.
5.4. He also relied upon the judgment of the Madhya Pradesh
High Court in Sasan I (supra) and argued that, in appeal, the Supreme F
Court did not dislodge any of the findings of the High Court but instead
proceeded on the basis that the arbitration was not between only two
Indian companies. He then argued, relying upon a commentary on
International Commercial Arbitration, authored by Prof. Eric E. Bergsten
and published by the United Nations Conference on Trade and G
Development in 2005 [“UNCTAD Commentary on International
Commercial Arbitration”], that parties being from the same State can
agree to have their disputes resolved in a State other than the State to
which they belong, as a result of which the New York Convention will
then apply to enforce the aforesaid foreign award.
H
556 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 5.5. He then went on to argue that neither section 23 nor section
28 of the Contract Act proscribe the choice of a foreign seat in arbitration.
As a matter of fact, the exception to section 28 of the Contract Act
expressly excepts arbitration from the clutches of section 28, which is
an express approval to party autonomy which is the very basis of the
Arbitration Act. He also argued that section 23 of the Contract Act,
B
when it speaks of “public policy”, must be confined to clear and
incontestable cases of harm to the public and cited several cases to
buttress this proposition.
5.6. In any case, he combated Mr. Himani’s argument by referring
to paragraph 118 of BALCO (supra) to argue that section 28(1) of the
C Arbitration Act would apply only when the arbitration takes place in
India and not when the seat is outside India. Equally, grounds available
for challenge, which would no longer be available as a result of two
parties going abroad to resolve their differences, are waivable, and both
parties have, in this case, substituted the challenge to be made to an
D award under section 34 of the Arbitration Act with two bites at the
cherry – first, by a challenge under Swiss law to the award in Zurich,
and second, by resisting enforcement under the grounds contained in
section 48 of the Arbitration Act.
5.7. He then refuted Mr. Himani’s contention that the expression
E “unless the context otherwise requires” can be used to defeat the very
basis of section 44, arguing that section 44 only requires that the seat of
arbitration be in a territory which is outside India and cited case law for
this proposition.
5.8. He also refuted Mr. Himani’s argument that Mumbai should
F be the seat, as the closest connection test applies only absent the
determination of seat. In the present case, the arbitration clause in the
settlement agreement, together with the procedural orders passed by
the arbitrator, designated Zurich as the seat and Mumbai only as a
convenient venue, which has been accepted by both parties, and must
govern the arbitral proceedings in this case.
G
5.9. He then proceeded to distinguish the three judgments relied
upon by Mr. Himani to demonstrate that two Indian parties can choose
a foreign seat. He then went on to argue that both in the proviso to
section 2(2) and section 10 of the Commercial Courts Act, the phrase
“international commercial arbitration” is not governed by the definition
H
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 557
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
contained in section 2(1)(f) but would only refer to arbitrations in which A
the seat is outside India.
The Arbitration and Conciliation Act, 1996
6. Having heard learned counsel for both parties, it is first
necessary to set out the relevant provisions of Part I and Part II of the
Arbitration Act. B
“2. Definitions.—(1) In this Part, unless the context otherwise
requires,—
***
(e) “Court” means— C
(i) in the case of an arbitration other than international
commercial arbitration, the principal civil court of
original jurisdiction in a district, and includes the High
Court in exercise of its ordinary original civil
jurisdiction, having jurisdiction to decide the questions D
forming the subject matter of the arbitration if the
same had been the subject matter of a suit, but does
not include any civil court of a grade inferior to such
principal civil court, or any Court of Small Causes;
(ii) in the case of international commercial arbitration, E
the High Court in exercise of its ordinary original
civil jurisdiction, having jurisdiction to decide the
questions forming the subject matter of the arbitration
if the same had been the subject matter of a suit, and
in other cases, a High Court having jurisdiction to
F
hear appeals from decrees of courts subordinate to
that High Court;
(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— G
(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 H
558 SUPREME COURT REPORTS [2021] 4 S.C.R.
A (iii) 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;
***
B
Scope
(2) This Part shall apply where the place of arbitration is in India.
Provided that subject to an agreement to the contrary, the provisions
of Sections 9, 27 and clause (b) of sub-section (1) and sub-section
C (3) of Section 37 shall also apply to international commercial
arbitration, even if the place of arbitration is outside India, and an
arbitral award made or to be made in such place is enforceable
and recognised under the provisions of Part II of this Act.
***
D
Construction of references
(6) Where this Part, except Section 28, leaves the parties free to
determine a certain issue, that freedom shall include the right of
the parties to authorise any person including an institution, to
determine that issue.
E
(7) An arbitral award made under this Part shall be considered as
a domestic award.”
A party may choose to waive its right to object under section 4 of
the Arbitration Act, which reads as follows:
F “4. Waiver of right to object.—A party who knows that—
(a) any provision of this Part from which the parties may
derogate, or
(b) any requirement under the arbitration agreement, has
not been complied with and yet proceeds with the
G
arbitration without stating his objection to such non-
compliance without undue delay or, if a time-limit is
provided for stating that objection, within that period
of time, shall be deemed to have waived his right to
so object.”
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The rules applicable to the substance of dispute are set out in A
section 28 as follows:
“28. Rules applicable to substance of dispute.—(1) Where
the place of arbitration is situated in India,—
(a) in an arbitration other than an international commercial
arbitration, the arbitral tribunal shall decide the dispute B
submitted to arbitration in accordance with the substantive
law for the time being in force in India;
(b) in international commercial arbitration,—
(i) the arbitral tribunal shall decide the dispute in C
accordance with the rules of law designated by the
parties as applicable to the substance of the dispute;
(ii) any designation by the parties of the law or legal
system of a given country shall be construed, unless
otherwise expressed, as directly referring to the D
substantive law of that country and not to its conflict
of laws rules;
(iii) failing any designation of the law under sub-clause
(ii) by the parties, the arbitral tribunal shall apply the
rules of law it considers to be appropriate given all
E
the circumstances surrounding the dispute.
(2) The arbitral tribunal shall decide ex aequo et bono or
as amiable compositeur only if the parties have expressly
authorised it to do so.
(3) While deciding and making an award, the arbitral tribunal shall, F
in all cases, take into account the terms of the contract and trade
usages applicable to the transaction.”
Recourse to a court against an arbitral award may be made by an
application for setting aside such award, inter alia, under section 34(2A)
of the Arbitration Act, which is set out as follows: G
“34. Application for setting aside arbitral award.—
***
(2A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by
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560 SUPREME COURT REPORTS [2021] 4 S.C.R.
A the court, if the court finds that the award is vitiated by patent
illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground
of an erroneous application of the law or by reappreciation of
evidence.”
B Part II of the Arbitration Act deals with enforcement of foreign
awards in India, and contains two chapters, Chapter I of which deals
with the enforcements of awards to which the New York Convention
applies. Sections 44, 46, 47, and 49, contained in Chapter I of Part II of
the Arbitration Act, are extracted as follows:
C “44. Definition.—In this Chapter, unless the context otherwise
requires, “foreign award” means an arbitral award on differences
between persons arising out of legal relationships, whether
contractual or not, considered as commercial under the law in
force in India, made on or after the 11th day of October, 1960—
D (a) in pursuance of an agreement in writing for arbitration to
which the Convention set forth in the First Schedule applies,
and
(b) in one of such territories as the Central Government, being
satisfied that reciprocal provisions have been made may,
E by notification in the Official Gazette, declare to be territories
to which the said Convention applies.”
“46. When foreign award binding.—Any foreign award which
would be enforceable under this Chapter shall be treated as binding
for all purposes on the persons as between whom it was made,
F and may accordingly be relied on by any of those persons by way
of defence, set-off or otherwise in any legal proceedings in India
and any references in this Chapter to enforcing a foreign award
shall be construed as including references to relying on an award.”
“47. Evidence.—(1) The party applying for the enforcement of
G a foreign award shall, at the time of the application, produce before
the Court—
(a) the original award or a copy thereof, duly authenticated in
the manner required by the law of the country in which it
was made;
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(b) the original agreement for arbitration or a duly certified copy A
thereof; and
(c) such evidence as may be necessary to prove that the award
is a foreign award.
(2) If the award or agreement to be produced under sub-section
(1) is in a foreign language, the party seeking to enforce the award B
shall produce a translation into English certified as correct by a
diplomatic or consular agent of the country to which that party
belongs or certified as correct in such other manner as may be
sufficient according to the law in force in India.
Explanation.—In this section and in the sections following in this C
Chapter, “Court” means the High Court having original jurisdiction
to decide the questions forming the subject matter of the arbitral
award if the same had been the subject matter of a suit on its
original civil jurisdiction and in other cases, in the High Court having
jurisdiction to hear appeals from decrees of courts subordinate to D
such High Court.”
“49. Enforcement of foreign awards.—Where the Court is
satisfied that the foreign award is enforceable under this Chapter,
the award shall be deemed to be a decree of that Court.”
Seat of the arbitral proceedings in the present case E
7. Clause 6 of the settlement agreement extracted above would
show that arbitration is to be resolved “in Zurich” in accordance with
the Rules of Conciliation and Arbitration of the ICC. In similar
circumstances, in Mankastu Impex (P) Ltd. v. Airvisual Ltd., (2020)
5 SCC 399, where disputes were to be resolved by arbitration F
“administered in Hong Kong”, the Court concluded:
“21. In the present case, the arbitration agreement entered into
between the parties provides Hong Kong as the place of arbitration.
The agreement between the parties choosing “Hong Kong” as
the place of arbitration by itself will not lead to the conclusion that G
the parties have chosen Hong Kong as the seat of arbitration.
The words, “the place of arbitration” shall be “Hong Kong”, have
to be read along with Clause 17.2. Clause 17.2 provides that
“… any dispute, controversy, difference arising out of or
relating to MoU shall be referred to and finally resolved by
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562 SUPREME COURT REPORTS [2021] 4 S.C.R.
A arbitration administered in Hong Kong….”. On a plain reading
of the arbitration agreement, it is clear that the reference to Hong
Kong as “place of arbitration” is not a simple reference as the
“venue” for the arbitral proceedings; but a reference to Hong
Kong is for final resolution by arbitration administered in Hong
Kong. The agreement between the parties that the dispute “shall
B
be referred to and finally resolved by arbitration administered
in Hong Kong” clearly suggests that the parties have agreed
that the arbitration be seated at Hong Kong and that laws of Hong
Kong shall govern the arbitration proceedings as well as have
power of judicial review over the arbitration award.”
C (emphasis in original)
As per this clause, Zurich was therefore determined to be the
juridical seat of arbitration between the parties.
8. At the Case Management Conference held on 28.06.2018, the
D learned arbitrator specifically decided:
“3. The venue of the hearing shall be Mumbai, India. The seat of
the arbitration of course remains Zurich, Switzerland. I am grateful
to the Respondent for offering to assist with the organisation of
the hearing in India. The consequence of holding the hearing in
E Mumbai will of course be dealt with in the Award on costs,
depending on the outcome. The Tribunal is of the view that it is
cost efficient to hold the hearing in India where the parties are
based, the Respondent’s five witnesses are based, where
Respondent’s legal team are based and Claimant’s co-counsel is
based. This means that the Claimant’s lead counsel, the Claimant’s
F sole witness and the sole arbitrator must travel to India. …”
This arrangement has been accepted by both parties. Even in the
final award dated 18.04.2019, the learned arbitrator held:
“82. For the reasons set out above, the Tribunal therefore has
held in Procedural Order No.3 and hereby finds that the arbitration
G
clause in the Settlement Agreement is valid and proceeds to apply
the Swiss Act because the seat of theArbitration is Zurich,
Switzerland.”
9. The closest connection test strongly relied upon by Mr. Himani
would only apply if it is unclear that a seat has been designated either by
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the parties or by the tribunal. In this case, the seat has clearly been A
designated both by the parties and by the tribunal, and has been accepted
by both the parties. The judgment in Enercon (supra), relied upon by
Mr. Himani, applied the aforesaid test only because the arbitration clause
therein provided that London was the “venue” and not the seat. It was,
therefore, pointed out by this Court that given the various factors
B
connecting the dispute to India and the absence of any factors connecting
it to England, on the facts of that case, there was no necessity to regard
London as the seat when it was, in fact, only the venue (see paragraphs
98-103, 114-116, and 128).
10. For this reason, it is not possible to accept Mr. Himani’s
contention that the seat of arbitration ought to be held to be Mumbai in C
the facts of the present case.
Part I and Part II of the Arbitration Act are mutually
exclusive
11. The Arbitration Act is in four parts. Part I deals with arbitrations D
where the seat is in India and has no application to a foreign-seated
arbitration. It is, therefore, a complete code in dealing with appointment
of arbitrators, commencement of arbitration, making of an award and
challenges to the aforesaid award as well as execution of such awards.
On the other hand, Part II is not concerned with the arbitral proceedings
at all. It is concerned only with the enforcement of a foreign award, as E
defined, in India. Section 45 alone deals with referring the parties to
arbitration in the circumstances mentioned therein. Barring this exception,
in any case, Part II does not apply to arbitral proceedings once
commenced in a country outside India.
12. Even before the Arbitration Act of 1996, India, being one of F
the earliest signatories to the New York Convention, legislated in
accordance therewith and enacted the Foreign Awards Act in 1961.
Under this Act, section 2, which is pari materia to section 44 of the
Arbitration Act, laid down:
“2. Definition.—In this Act, unless the context otherwise requires, G
“foreign award” means an award on differences between persons
arising out of legal relationships, whether contractual or not,
considered as commercial under the law in force in India, made
on or after the 11th day of October, 1960—
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564 SUPREME COURT REPORTS [2021] 4 S.C.R.
A (a) in pursuance of an agreement in writing for arbitration to
which the Convention set forth in the Schedule applies; and
(b) in one of such territories as the Central Government being
satisfied that reciprocal provisions have been made, may,
by notification in the official Gazette, declare to be territories
B to which the said Convention applies.”
Under section 6 of the Foreign Awards Act, where the court is
satisfied that the foreign award is enforceable, the court shall order the
award to be filed and shall proceed to pronounce judgment according to
the award. This provision has since been done away with by the
C Arbitration Act, 1996 as section 49 of the Arbitration Act expressly
provides that the award shall be deemed to be a decree of the court.
Thereafter, section 7 of the Foreign Awards Act enumerates grounds on
which such foreign award may be refused to be enforced. Obviously,
under the earlier regime, there was no overlap between the Arbitration
Act, 1940, which dealt only with domestic awards, and the Foreign
D Awards Act. This situation continues in the current Arbitration Act, Part
I and Part II of which have been held to be mutually exclusive. Thus, in
BALCO (supra), this Court held:
“37. In 1953 the International Chamber of Commerce promoted
a new treaty to govern international commercial arbitration. The
E proposals of ICC were taken up by the United Nations Economic
and Social Council. This in turn led to the adoption of the
Convention on the Recognition and Enforcement of Foreign
Arbitral Awards at New York in 1958 (popularly known as “the
New York Convention”). The New York Convention is an
F improvement on the Geneva Convention of 1927. It provides for
a much more simple and effective method of recognition and
enforcement of foreign arbitral awards. It gives much wider effect
to the validity of arbitration agreement. This Convention came
into force on 7-6-1959. India became a State signatory to this
Convention on 13-7-1960. The Foreign Awards (Recognition and
G Enforcement) Act, 1961 was enacted to give effect to the New
York Convention.”
***
“44. In the 1961 Act, there is no provision for challenging the
foreign award on merits similar or identical to the provisions
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contained in Sections 16 and 30 of the 1940 Act, which gave A
power to remit the award to the arbitrators or umpire for
reconsideration under Section 30 which provided the grounds for
setting aside an award. In other words, the 1961 Act dealt only
with the enforcement of foreign awards. The Indian Law has
remained as such from 1961 onwards. There was no intermingling
B
of matters covered under the 1940 Act, with the matters covered
by the 1961 Act.”
***
“88. … Section 2(7) of the Arbitration Act, 1996 reads thus:
“2. (7) An arbitral award made under this Part shall be considered C
as a domestic award.”
In our opinion, the aforesaid provision does not, in any manner,
relax the territorial principle adopted by the Arbitration Act, 1996.
It certainly does not introduce the concept of a delocalised
arbitration into the Arbitration Act, 1996. It must be remembered D
that Part I of the Arbitration Act, 1996 applies not only to purely
domestic arbitrations i.e. where none of the parties are in any
way “foreign” but also to “international commercial arbitrations”
covered within Section 2(1)(f) held in India. The term “domestic
award” can be used in two senses: one to distinguish it from E
“international award”, and the other to distinguish it from a “foreign
award”. It must also be remembered that “foreign award” may
well be a domestic award in the country in which it is rendered.
As the whole of the Arbitration Act, 1996 is designed to give
different treatments to the awards made in India and those made
outside India, the distinction is necessarily to be made between F
the terms “domestic awards” and “foreign awards”. The scheme
of the Arbitration Act, 1996 provides that Part I shall apply to both
“international arbitrations” which take place in India as well as
“domestic arbitrations” which would normally take place in India.
This is clear from a number of provisions contained in the G
Arbitration Act, 1996 viz. the Preamble of the said Act, proviso
and the explanation to Section 1(2), Sections 2(1)(f), 11(9), 11(12),
28(1)(a) and 28(1)(b). All the aforesaid provisions, which
incorporate the term “international”, deal with pre-award situation.
The term “international award” does not occur in Part I at all.
Therefore, it would appear that the term “domestic award” means H
566 SUPREME COURT REPORTS [2021] 4 S.C.R.
A an award made in India whether in a purely domestic context i.e.
domestically rendered award in a domestic arbitration or in the
international context i.e. domestically rendered award in an
international arbitration. Both the types of awards are liable to be
challenged under Section 34 and are enforceable under Section
36 of the Arbitration Act, 1996. Therefore, it seems clear that the
B
object of Section 2(7) is to distinguish the domestic award covered
under Part I of the Arbitration Act, 1996 from the “foreign award”
covered under Part II of the aforesaid Act; and not to distinguish
the “domestic award” from an “international award” rendered
in India. In other words, the provision highlights, if anything, a
C clear distinction between Part I and Part II as being applicable in
completely different fields and with no overlapping provisions.
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. The definitions
contained in Sections 2(1)(a) to (h) are limited to Part I. The
D 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
E (Enforcement of Certain Foreign Awards); Chapter II (Geneva
Convention Awards). From the aforesaid, the intention of
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
F 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.
G This, in our opinion, was not the intention of 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.”
H ***
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“120. We are unable to agree with the submission of the learned A
Senior Counsel that there is any overlapping of the provisions in
Part I and Part II; nor are the provisions in Part II supplementary
to Part I. Rather there is complete segregation between the two
parts.
121. Generally speaking, regulation of arbitration consists of four B
steps:
(a) the commencement of arbitration;
(b) the conduct of arbitration;
(c) the challenge to the award; and C
(d) the recognition or enforcement of the award.
In our opinion, the aforesaid delineation is self-evident in Part I
and Part II of the Arbitration Act, 1996. Part I of the Arbitration
Act, 1996 regulates arbitrations at all the four stages. Part II,
however, regulates arbitration only in respect of commencement D
and recognition or enforcement of the award.”
***
“124. Having accepted the principle of territoriality, it is evident
that the intention of Parliament was to segregate Part I and Part
II. Therefore, any of the provisions contained in Part I cannot be E
made applicable to foreign awards, as defined under Sections 44
and 53 i.e. the New York Convention and the Geneva awards.
This would be a distortion of the scheme of the Act. It is, therefore,
not possible to accept the submission of Mr Subramanium that
provisions contained in Part II are supplementary to the provision F
contained in Part I. Parliament has clearly segregated the two
parts.”
13. This being the case, it is a little difficult to accede to any
argument that would breach the wall between Parts I and II. Mr. Himani’s
argument that the proviso to section 2(2) of the Arbitration Act is a G
bridge which connects the two parts must, thus, be rejected. As a matter
of fact, section 2(2) specifically states that Part I applies only where the
place of arbitration is in India. It is settled law that a proviso cannot
travel beyond the main enacting provision – see Union of India v. Dileep
Kumar Singh, (2015) 4 SCC 421 (at paragraph 20), DMRC v. Tarun
H
568 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Pal Singh, (2018) 14 SCC 161 (at paragraph 21), Kandla Export Corpn.
v. OCI Corpn., (2018) 14 SCC 715 (at paragraph 13), and Mavilayi
Service Co-operative Bank Ltd. v. Commissioner of Income Tax,
Calicut, 2021 SCC OnLine SC 16 (at paragraph 41).
14. As a matter of fact, the reason for the insertion of the proviso
B to section 2(2) by the Arbitration and Conciliation (Amendment) Act,
2015 was because the judgment in Bhatia International v. Bulk
Trading S.A., (2002) 4 SCC 105 [“Bhatia”] had muddied the waters
by holding that section 9 would apply to arbitrations which take place
outside India without any express provision to that effect. The judgment
in Bhatia (supra) has been expressly overruled a five-Judge Bench in
C BALCO (supra). Pursuant thereto, a proviso has now been inserted to
section 2(2) which only makes it clear that where, in an arbitration which
takes place outside India, assets of one of the parties are situated in
India and interim orders are required qua such assets, including
preservation thereof, the courts in India may pass such orders. It is
D important to note that the expression “international commercial
arbitration” is specifically spoken of in the context of a place of arbitration
being outside India, the consequence of which is an arbitral award to be
made in such place, but which is enforced and recognised under the
provisions of Part II of the Arbitration Act. The context of this expression
is, therefore, different from the context of the definition of “international
E commercial arbitration” contained in Section 2(1)(f), which is in the
context of such arbitration taking place in India, which only applies “unless
the context otherwise requires”. The four sub-clauses contained in section
2(1)(f) would make it clear that the definition of the expression
“international commercial arbitration” contained therein is party-centric
F in the sense that at least one of the parties to the arbitration agreement
should, inter alia, be a person who is a national of or habitually resident
in any country other than India. On the other hand, when “international
commercial arbitration” is spoken of in the context of taking place outside
India, it is place-centric as is provided by section 44 of the Arbitration
Act. This expression, therefore, only means that it is an arbitration which
G takes place between two parties in a territory outside India, the New
York Convention applying to such territory, thus making it an
“international” commercial arbitration.
Ingredients of a Foreign Award sought to be enforced under
Part II
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15. Section 44 of the Arbitration Act is modelled on Articles I and A
II of the New York Convention. The relevant provisions of the New
York Convention read as under:
“Article I
1. This Convention shall apply to the recognition and enforcement
of arbitral awards made in the territory of a State other than the B
State where the recognition and enforcement of such awards are
sought, and arising out of differences between persons, whether
physical or legal. It shall also apply to arbitral awards not considered
as domestic awards in the State where their recognition and
enforcement are sought.” C
***
“Article II
1. Each Contracting State shall recognise an agreement in writing
under which the parties undertake to submit to arbitration all or D
any differences which have arisen or which may arise between
them in respect of defined legal relationship, whether contractual
or not, concerning a subject-matter capable of settlement by
arbitration.
2. The term “agreement in writing” shall include an arbitral clause
E
in a contract or an arbitration agreement, signed by the parties or
contained in an exchange of letters or telegrams.”
16. By way of contrast, section 53 of the Arbitration Act, which
deals with awards under the Geneva Convention on the Execution of
Foreign Arbitral Awards, 1927 [“Geneva Convention”], states:
F
“53. Interpretation.—In this Chapter “foreign award” means
an arbitral award on differences relating to matters considered as
commercial under the law in force in India made after the 28th
day of July, 1924,—
(a) in pursuance of an agreement for arbitration to which the G
Protocol set forth in the Second Schedule applies, and
(b) between persons of whom one is subject to the jurisdiction
of some one of such powers as the Central Government,
being satisfied that reciprocal provisions have been made,
may, by notification in the Official Gazette, declare to be H
570 SUPREME COURT REPORTS [2021] 4 S.C.R.
A parties to the Convention set forth in the Third Schedule,
and of whom the other is subject to the jurisdiction of some
other of the powers aforesaid, and
(c) in one of such territories as the Central Government, being
satisfied that reciprocal provisions have been made, may,
B by like notification, declare to be territories to which the
said Convention applies,
and for the purposes of this Chapter an award shall not be deemed
to be final if any proceedings for the purpose of contesting the
validity of the award are pending in the country in which it was
C made.”
It will be seen that the requirement of section 53(b) is conspicuous
by its absence in section 44 when it comes to an award to which the
New York Convention applies.
17. As a matter of fact, before the New York Convention was
D made final, several countries wanted to insert the provisions of section
53(b), which reflected Article I of the Geneva Convention, in the New
York Convention as well. Thus, China objected to the phrasing of Article
I of the New York Convention, stating:
“China
E
The first part of article I, paragraph 2, provides: ‘Any Contracting
State may, upon signing, ratifying or acceding to this Convention,
declare that it will apply the Convention only to the recognition
and enforcement of arbitral awards made in the territory of another
Contracting State.’ It follows from this provision that any person
F receiving an arbitral award in a Contracting State may request
recognition and enforcement, and this right is not limited to the
nationals of a Contracting State. The Chinese Government
considers this provision as too liberal, and is of the opinion that, on
the basis of the principle of international reciprocity, such a right
should be restricted in accordance with the spirit of article I of the
G
1927 Convention on the Execution of Foreign Arbitral Awards,
which provides: ‘An arbitral award … shall be recognised as
binding and shall be enforced … provided that the said award has
been made in a territory of one of the High Contracting Parties to
which the present Convention applies, and between persons who
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are subject to the jurisdiction of one of the High Contracting A
Parties.’”
Likewise, Mexico also objected, stating:
“The Mexican Government further considers that it would be
advisable to include in the draft Convention the stipulation contained
in the Geneva Convention that the arbitral award must have been B
made in a dispute between persons who are subject to the
jurisdiction of one of the Contracting States. The Mexican
Government takes this view because Mexican law regards arbitral
awards as acts which in themselves are private, since they are
made pursuant to compromise concluded between private persons, C
and which become enforceable only when the logic of the award
is, in addition supported by the authority of a judicial decision.”
Hungary followed suit, also stating:
“For this reason, and contrary to the statement contained in point
23 of the Committee’s report, the point should be reconsidered D
whether, in compliance with the provisions of the Geneva
Convention of 1927, the validity of the Convention should be
restricted to arbitral awards on differences between persons
coming under the jurisdiction of one or the other of the Contracting
States, or whether at least the Contracting States should be E
accorded the right under the Convention to apply the provisions
of the same only to arbitral awards of such a nature. If the present
meaning of the word ‘jurisdiction’ – as stated in the Committee’s
report - is rather vague and ambiguous, there is no reason why it
should not be defined more precisely.”
F
As did Norway:
“As far as the definition of the scope of the convention is
concerned, the Norwegian Government agrees with the Special
Committee (see paragraph 23 of the Report) that the requirement
of the Geneva Convention of 1927 (article I, first paragraph), to
G
the effect that the arbitral award must have been made “between
persons who are subject to the jurisdiction of one of the High
Contracting Parties”, is too vague and ambiguous. The scope of
the present draft seems on the other hand to be unreasonably
comprehensive. As now formulated, the convention would apply
even if both the parties to the arbitral award are nationals of the H
572 SUPREME COURT REPORTS [2021] 4 S.C.R.
A State where enforcement is sought as well as in cases where
none of them is a national of a Contracting State.”
18. Professor Pieter Sanders, in an article “New York Convention
on the Recognition and Enforcement of Foreign Arbitral Awards”
(Netherlands International Law Review, Volume 6, Issue 1, March 1959),
B outlined what he referred to as the strides made by the New York
Convention when compared with the Geneva Convention, thus:
“The international business world, for whom these conventions
are made, strongly hopes that Government will soon ratify the
New York Convention or accede to it, as in their opinion the
C Convention constitutes an important step forward compared with
the Geneva Convention. Before briefly commenting upon the
separate articles of the Convention, I may try to give a broad
outline of the most important differences between the Geneva
Convention 1927 and the New York Convention 1958.”
D ***
“4. Article 1 has been the result of lengthy discussions in a special
working group as well as in the plenary sessions of the New York
arbitration conference. The first paragraph is the result of a
compromise reached within the working group. The first sentence
E of this paragraph is based upon a territorial criterion:
The Convention shall apply to the recognition and enforcement of
arbitral awards made in the territory of a state other than the
state where the recognition and enforcement of such awards are
sought, and arising out of differences between persons, whether
F physical or legal.
The second sentence introduces the national principle:
It shall also apply to arbitral awards not considered as domestic
awards in the state where their recognition and enforcement is
sought.
G Let me illustrate this by an example. Germany regards an arbitral
award rendered in France under German procedural law as a
German arbitral award and an arbitral award rendered in Germany
under French procedural law as a non-domestic, French award.
Germany applies the criterion of the applicable procedural law
H and therefore will also apply the Convention when enforcement
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 573
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
is sought in Germany of an award rendered in Germany under A
French procedural law.
The scope of the new Convention is wider than that of the Geneva
Convention which applies to awards that have been “made in a
territory of one of the High Contracting Parties to which the
Convention applies and between persons who are subject to the B
jurisdiction of one of the High Contracting Parties”. Here we
only find the territorial principle and in addition to this the restriction
that the award must be made between persons, subject to the
jurisdiction of the High Contracting Parties.”
19. Likewise, Gary B. Born, in his book “International Commercial C
Arbitration” (Wolters Kluwer, 3rd Edn., 2021), has this to say:
“The Geneva Protocol was expressly limited to agreements to
arbitrate between parties that were nationals of different
Contracting States. This was the sole criterion for
“internationality”: other agreements to arbitrate, even if they D
involved classic cross-border international trade or investment,
were not subject to the Protocol.
In contrast, as noted above, the text of Article II of the New York
Convention does not expressly address the categories of arbitration
agreements which are subject to the Convention. Instead, the E
Convention’s text only addresses what arbitral awards are entitled
to the treaty’s protections. As a consequence, the definition of
those arbitration agreements that are within the scope of the New
York Convention must be ascertained by implication, either by
reference to the Convention’s treatment of awards or otherwise.
In these circumstances, there are unfortunately several possible F
interpretations that may be adopted. The analysis of these
permutations can be frustratingly complex, but, properly
understood, ultimately produces a simple, sensible result.”
20. Finally, the New York Convention, in Article I(3), referred to
only two conditions that can be made by a State when it signs, ratifies, or G
accedes to the New York Convention, as follows:
“3. When signing, ratifying or acceding to this Convention, or
notifying extension under article X hereof, any State may on the
basis of reciprocity declare that it will apply the Convention to the
recognition and enforcement of awards made only in the territory H
574 SUPREME COURT REPORTS [2021] 4 S.C.R.
A of another Contracting State. It may also declare that it will apply
the Convention only to differences arising out of legal relationships,
whether contractual or not, which are considered as commercial
under the national law of the State making such declaration.”
It is in pursuance of Article I of the New York Convention that
B section 44 of the Arbitration Act has been enacted.
21. Under section 44 of the Arbitration Act, a foreign award is
defined as meaning an arbitral award on differences between persons
arising out of legal relationships considered as commercial under the
law in force in India, in pursuance of an agreement in writing for arbitration
C to which the New York Convention applies, and in one of such territories
as the Central Government, by notification, declares to be territories to
which the said Convention applies. Thus, what is necessary for an award
to be designated as a foreign award under section 44 are four ingredients:
(i) the dispute must be considered to be a commercial dispute
D under the law in force in India,
(ii) it must be made in pursuance of an agreement in writing
for arbitration,
(iii) it must be disputes that arise between “persons” (without
regard to their nationality, residence, or domicile), and
E
(iv) the arbitration must be conducted in a country which is a
signatory to the New York Convention.
Ingredient (i) is undoubtedly satisfied on the facts of this case.
Ingredient (ii) is satisfied given clause 6 of the settlement agreement.
Ingredients (iii) and (iv) are also satisfied on the facts of this case as the
F
disputes are between two persons, i.e. two Indian companies, and the
arbitration is conducted at the seat designated by the parties, i.e. Zurich,
being in Switzerland, a signatory to the New York Convention.
22. At this juncture, it is important to cite the UNCTAD
Commentary on International Commercial Arbitration, which states:
G
“1.4.1 Foreign arbitration and international arbitration are
not the same
An arbitration that takes place in State A is a foreign arbitration in
State B. It does not matter whether the arbitration is commercial
H or non-commercial or whether the parties are from the same
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 575
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
country, from different countries or that one or all are from State A
A. Since even a domestic arbitration in State A is a foreign
arbitration in State B, the courts of State B would be called upon
to apply the New York Convention to enforcement of a clause
calling for arbitration in State A and to the enforcement of any
award that would result.
B
Aiding foreign arbitration
In some legal systems the courts will not come to the aid of a
“foreign” arbitration by way of aiding in the procurement of
evidence, granting interim orders of protection or the like. However,
many modern arbitration laws provide that the courts will aid C
arbitrations taking place in a foreign State.
1.4.3 Definition of an international arbitration
***
Model Law D
In the Model Law an arbitration is international if any one of four
different situations is present:
***
2) The place of arbitration, if determined in or pursuant to, the
arbitration agreement, is situated outside the State in which the E
parties have their places of business.”
23. The ICCA’s Guide to the Interpretation of the 1958 New York
Convention: A Handbook for Judges, compiled by the International Council
for Commercial Arbitration with the assistance of the Permanent Court
of Arbitration, in its comment on Article I(1) of the New York Convention, F
and particularly, the expression “awards made in the territory of a State
other than the State where the recognition and enforcement … are
sought”, states as follows:
“III.1.1. … Any award made in a State other than the State of
the recognition or enforcement court falls within the scope of the G
Convention, i.e., is a foreign award. Hence, the nationality, domicile
or residence of the parties is without relevance to determine
whether an award is foreign. …
Where is an award made? The Convention does not answer this
question. The vast majority of Contracting States considers that H
576 SUPREME COURT REPORTS [2021] 4 S.C.R.
A an award is made at the seat of the arbitration. The seat of the
arbitration is chosen by the parties or alternatively, by the arbitral
institution or the arbitral tribunal. It is a legal, not a physical,
geographical concept. Hearings, deliberations and signature of
the award and other parts of the arbitral process may take place
elsewhere.”
B
24. However, Mr. Himani strongly relied upon the following
judgments to buttress his submission that the expression “unless the
context otherwise requires” used in section 44 would necessarily import
the definition of “international commercial arbitration” contained in Part
I when the context requires this to be done, namely, when two Indian
C parties are resolving their disputes against each other in a territory outside
India:
(i) Vanguard Fire and General Insurance Co. Ltd. v. Fraser
and Ross, (1960) 3 SCR 857
D “The main basis of this contention is the definition of the word
“insurer” in Section 2(9) of the Act. It is pointed out that that
definition begins with the words “insurer means” and is therefore
exhaustive. It may be accepted that generally the word “insurer”
has been defined for the purposes of the Act to mean a person or
body corporate etc. which is actually carrying on the business of
E insurance i.e. the business of effecting contracts of insurance of
whatever kind they might be. But Section 2 begins with the words
“in this Act, unless there is anything repugnant in the subject or
context” and then come the various definition clauses of which
(9) is one. It is well settled that all statutory definitions or
F abbreviations must be read subject to the qualification variously
expressed in the definition clauses which created them and it may
be that even where the definition is exhaustive inasmuch as the
word defined is said to mean a certain thing, it is possible for the
word to have a somewhat different meaning in different sections
of the Act depending upon the subject or the context. That is why
G all definitions in statutes generally begin with the qualifying words
similar to the words used in the present case, namely, unless there
is anything repugnant in the subject or context. Therefore in finding
out the meaning of the word “insurer” in various sections of the
Act, the meaning to be ordinarily given to it is that given in the
H definition clause. But this is not inflexible and there may be sections
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 577
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
in the Act where the meaning may have to be departed from on A
account of the subject or context in which the word has been
used and that will be giving effect to the opening sentence in the
definition section, namely, unless there is anything repugnant in
the subject or context. In view of this qualification, the court has
not only to look at the words but also to look at the context, the
B
collocation and the object of such words relating to such matter
and interpret the meaning intended to be conveyed by the use of
the words under the circumstances. Therefore, though ordinarily
the word “insurer” as used in the Act would mean a person or
body corporate actually carrying on the business of insurance it
may be that in certain sections the word may have a somewhat C
different meaning.”
(at pages 863-864)
(ii) Bennett Coleman & Co. (P) Ltd. v. Punya Priya Das
Gupta, (1969) 2 SCC 1
D
“6. … But assuming that there is such a conflict as contended,
we do not have to resolve that conflict for the purposes of the
problem before us. The definition of Section 2 of the present Act
commences with the words “In this Act unless the context
otherwise requires” and provides that the definitions of the various
expressions will be those that are given there. Similar qualifying E
expressions are also to be found in the Industrial Disputes Act,
1947, the Minimum Wages Act, 1948, the C.P. and Berar Industrial
Disputes Settlement Act, 1947 and certain other statutes dealing
with industrial questions. It is, therefore, clear that the definitions
of ‘a newspaper employee’ and ‘a working journalist’ have to be F
construed in the light of and subject to the context requiring
otherwise. Section 5 of the Act, which confers the right to gratuity
itself contemplates in clause (d) of sub-section (1) a case of
payment of gratuity to the nominee or the family of a working
journalist who dies while he is in the service of a newspaper
establishment. Section 17(1) provides that where any amount is G
due under the Act to a newspaper employee from an employer,
such an employee himself or a person authorised by him or, in
case of his death, any member of his family can apply to the State
Government or other specified authority for the recovery thereof.
Similar provisions are also to be found in Section 33-C(1) of the H
578 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Industrial Disputes Act. Claims under that section include those
for compensation in cases of retrenchment, transfer of an
undertaking and closure under Chapter V-A of that Act, all of
which would necessarily be claims arising after termination of
service and the claimant would obviously be one in all those cases
who would not be presently employed in the establishment of the
B
employer against whom such claims are made. Likewise, the claim
for gratuity under Section 17, read with Section 5 of the Act,
would itself be one which accrues after the termination of
employment. These provisions, therefore, clearly indicate that it
is not only a newspaper employee presently employed in a
C particular newspaper establishment who can maintain an
application for gratuity. The scheme of all these acts dealing with
industrial questions is to permit an ex-employee to avail of the
benefits of their provisions, the only requirement being that the
claim in dispute must be one which has arisen or accrued whilst
the claimant was in the employment of the person against whom
D
it is made. There can, therefore, be no doubt that the definitions
of a “newspaper employee” and “working journalist” being subject
to a context to the contrary, the benefit of Sections 5 and 17 is
available to an ex-employee though he has ceased to be in the
employment of that particular newspaper establishment at the time
E of his application for gratuity. The contention that the respondent
was not entitled to maintain his application as he was not in the
service of the appellant company on the date of his claim before
the Labour Court cannot be sustained.”
(iii) Allied Motors (P) Ltd. v. CIT, (1997) 3 SCC 472
F “12. In the case of Goodyear India Ltd. v. State of Haryana
[(1990) 2 SCC 71 : 1990 SCC (Tax) 223 : (1991) 188 ITR 402]
this Court said that the rule of reasonable construction must be
applied while construing a statute. Literal construction should be
avoided if it defeats the manifest object and purpose of the Act.
G 13. Therefore, in the well-known words of Judge Learned Hand,
one cannot make a fortress out of the dictionary; and should
remember that statutes have some purpose and object to
accomplish whose sympathetic and imaginative discovery is the
surest guide to their meaning. In the case of R.B. Jodha Mal
H Kuthiala v. CIT [(1971) 3 SCC 369 : (1971) 82 ITR 570] , this
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 579
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
Court said that one should apply the rule of reasonable A
interpretation. A proviso which is inserted to remedy unintended
consequences and to make the provision workable, a proviso which
supplies an obvious omission in the section and is required to be
read into the section to give the section a reasonable interpretation,
requires to be treated as retrospective in operation so that a
B
reasonable interpretation can be given to the section as a whole.”
25. We have already seen that the context of section 44 is party-
neutral, having reference to the place at which the award is made. For
this reason, it is not possible to accede to the argument that the very
basis of section 44 should be altered when two Indian nationals have
their disputes resolved in a country outside India. On the other hand, the C
judgment in S.K. Gupta v. K.P. Jain, (1979) 3 SCC 54 is apposite, and
states as follows:
“24. The noticeable feature of this definition is that it is an inclusive
definition and, where in a definition clause, the word “include” is
used, it is so done in order to enlarge the meaning of the words or D
phrases occurring in the body of the statute and when it is so
used, these words or phrases must be construed as comprehending
not only such things which they signify according to their natural
import, but also those things which the interpretation clause
declares that they shall include (see Dilworth v. Commissioner E
of Stamps [(1899) AC 99, 105 : 79 LT 473]). Where in a definition
section of a statute a word is defined to mean a certain thing,
wherever that word is used in that statute, it shall mean what is
stated in the definitions unless the context otherwise requires.
But where the definition is an inclusive definition, the word not
only bears its ordinary, popular and natural sense whenever that F
would be applicable but it also bears its extended statutory meaning.
At any rate, such expansive definition should be so construed as
not cutting down the enacting provisions of an Act unless the
phrase is absolutely clear in having opposite effect (see Jobbins
v. Middlesex County Council [(1949) 1 KB 142 : (1948) 2 All G
ER 610] ). Where the definition of an expression in a definition
clause is preceded by the words “unless the context otherwise
requires”, normally the definition given in the section should be
applied and given effect to but this normal rule may, however, be
departed from if there be something in the context to show that
H
580 SUPREME COURT REPORTS [2021] 4 S.C.R.
A the definition should not be applied (see Khanna, J., in Indira
Nehru Gandhi v. Raj Narain [(1975) Supp SCC 1, 97]). It would
thus appear that ordinarily one has to adhere to the definition and
if it is an expansive definition the same should be adhered to. The
frame of any definition more often than not is capable of being
made flexible but the precision and certainty in law requires that it
B
should not be made loose and kept tight as far as possible
(see Kalya Singh v. Genda Lal [(1976) 1 SCC 304, 309 : (1975)
3 SCR 783]).”
26. For this reason, it is not possible to accede to the argument
that the expression “unless the context otherwise requires” can be held
C to undo the very basis of section 44 by converting it from a seat-oriented
provision in countries that are signatories to the New York Convention
to a person-oriented provision in which one of the parties to the arbitration
agreement has to be a foreign national or habitually resident outside
India. In any case, the context of section 44 is very far removed from
D the context of an international commercial arbitration in Part I which is
defined for the purposes of section 11, section 28, section 29A(1), section
34(2A), and section 43I, all of which occur in Part I and deal with
arbitrations which take place in India. Also, the argument of Mr. Himani
would involve bodily importing the expression “international commercial
arbitration” into section 44, which cannot be done because of the opening
E words of section 44, “In this Chapter” which is Chapter I of Part II, and
then applying the definition contained in section 2(1)(f) of the Arbitration
Act which, being restricted to Part I, must now be applied to Part II. No
canon of interpretation would permit acceptance of such an argument.
27. At this point, it is important to refer to the judgment of this
F Court in Atlas (supra). In this case, even though the appellant, an Indian
company, had entered into a contract dated 03.06.1980 with a company
incorporated in Hong Kong, the goods were to be supplied through an
Indian company, namely, Kotak & Co., in Mumbai. Disputes arose
between the two Indian companies – Atlas Exports Pvt. Ltd. and Kotak
G & Co. The contract dated 03.06.1980 incorporated an arbitration clause
as follows:
“2. The contract dated 3-6-1980 incorporated an arbitration clause
which is extracted and reproduced hereunder:
“This contract is made under the terms and conditions effective
H at date of Grain and Food Trade Association Ltd., London,
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 581
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
Contract 15 which is hereby made a part of this contract … A
both buyers and sellers hereby acknowledge familiarity with
the text of the GAFTA contract and agree to be bound by its
terms and conditions.”
3. ”GAFTA” stands for Grain and Food Trade Association Ltd.,
London. Clause 27 of Standard Contract 15 of GAFTA provides B
as under:
“27. Arbitration.—(a) Any dispute arising out of or under this
contract shall be settled by arbitration in London in accordance
with the arbitration rules of Grain and Food Trade Association
Limited, No. 125 such rules forming part of this contract and C
of which both parties hereto shall be deemed to be cognisant.
(b) Neither party hereto, nor any persons claiming under either
of them, shall bring any such dispute until such dispute shall
first have been heard and determined by the arbitrators, umpire
or Board of Appeal, as the case may be, in accordance with D
the arbitration rules and it is expressly agreed and declared
that the obtaining of the award from the arbitration, umpire or
Board of Appeal, as the case may be, shall be a condition
precedent to the right of either party hereto or of any person
claiming under either of them to bring any action or other legal
proceedings against the other of them in respect of any such E
dispute.”
A foreign award was delivered on 22.06.1987 as per the Rules of
GAFTA, London. Kotak & Co. moved an application under sections 5
and 6 of the Foreign Awards Act before the High Court, seeking
enforcement of the award by filing the same and praying for F
pronouncement of judgment according to the award. The award was
made a rule of the court, followed by a decree, by a learned Single
Judge of the Bombay High Court. A Letters Patent Appeal preferred by
Atlas Exports Pvt. Ltd. was dismissed. A specific contention was raised
that since both Atlas Exports Pvt. Ltd. and Kotak & Co. were Indian G
parties, the award could not be enforced, being contrary to sections 23
and 28 of the Contract Act. This was repelled by this Court as follows:
“10. It was however contended by the learned counsel for the
appellant that the award should have been held to be unenforceable
inasmuch as the very contract between the parties relating to
H
582 SUPREME COURT REPORTS [2021] 4 S.C.R.
A arbitration was opposed to public policy under Section 23 read
with Section 28 of the Contract Act. It was submitted that Atlas
and Kotak, the parties between whom the dispute arose, are both
Indian parties and the contract which had the effect of compelling
them to resort to arbitration by foreign arbitrators and thereby
impliedly excluding the remedy available to them under the ordinary
B
law of India should be held to be opposed to public policy. Under
Section 23 of the Indian Contract Act the consideration or object
of an agreement is unlawful if it is opposed to public policy. Section
28 and Exception 1 to it, (which only is relevant for the purpose of
this case) are extracted and reproduced hereunder:
C “28. Every agreement, by which any party thereto is restricted
absolutely from enforcing his rights under or in respect of any
contract, by the usual legal proceedings in the ordinary tribunals,
or which limits the time within which he may thus enforce his
rights, is void to that extent.
D Exception 1.—This section shall not render illegal a contract,
by which two or more persons agree that any dispute which
may arise between them in respect of any subject or class of
subjects shall be referred to arbitration, and that only the amount
awarded in such arbitration shall be recoverable in respect of
E the dispute so referred.”
11. The case at hand is clearly covered by Exception 1 to Section
28. Right of the parties to have recourse to legal action is not
excluded by the agreement. The parties are only required to have
their dispute/s adjudicated by having the same referred to
F arbitration. Merely because the arbitrators are situated in a foreign
country cannot by itself be enough to nullify the arbitration
agreement when the parties have with their eyes open willingly
entered into the agreement. Moreover, in the case at hand the
parties have willingly initiated the arbitration proceedings on the
disputes having arisen between them. They have appointed
G arbitrators, participated in arbitration proceedings and suffered
an award. The plea raised before us was not raised either before
or during the arbitration proceedings, nor before the learned Single
Judge of the High Court in the objections filed before him, nor in
the letters patent appeal filed before the Division Bench. Such a
H
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 583
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
plea is not available to be raised by the appellant Atlas before this A
Court for the first time.”
28. It is clear that this Court categorically held that a foreign award
cannot be refused to be enforced merely because it was made between
two Indian parties, under pari materia provisions of the Foreign Awards
Act. The Court also held that since this plea had never been taken in any B
of the courts below, it was not available to the appellant to raise the said
plea before this Court for the first time.
29. It is clear that there can be more than one ratio decidendi to
a judgment. Thus, In Jacobs v. London County Council, (1950) 1 All
ER 737, the House of Lords, after referring to some earlier decisions, C
held, as follows:
“… However, this may be, there is, in my opinion, no justification
for regarding as obiter dictum a reason given by a Judge for his
decision, because he has given another reason also. If it were a
proper test to ask whether the decision would have been the same D
apart from the proposition alleged to be obiter, then a case which
ex facie decided two things would decide nothing. A good
illustration will be found in London Jewellers Ltd. v.
Attenborough, (1934) 2 KB 206 (CA). In that case the
determination of one of the issues depended on how far the Court
of Appeal was bound by its previous decision in Folkes v. R., E
(1923) 1 KB 282 (CA), [in which] the court had given two grounds
for its decision, the second of which [as stated by Greer, L.J.,
in Attenborough case, (1934) 2 KB 206] was that: (KB p. 222):
‘… where a man obtains possession with authority to sell, or
to become the owner himself, and then sells, he cannot be F
treated as having obtained the goods by larceny by a trick.’”
In Attenborough case, (1934) 2 KB 206 it was contended that,
since there was another reason given for the decision in Folkes
case, (1923) 1 KB 282, the second reason was obiter, but Greer,
L.J., said in reference to the argument of counsel: (Attenborough G
case, KB p. 222)
“I cannot help feeling that if we were unhampered by authority
there is much to be said for this proposition which commended
itself to Swift, J., and which commended itself to me
in Folkes v. R., (1923) 1 KB 282, but that view is not open to H
584 SUPREME COURT REPORTS [2021] 4 S.C.R.
A us in view of the decision of the Court of Appeal in Folkes v. R.,
(1923) 1 KB 282. In that case two reasons were given by all
the members of the Court of Appeal for their decision and we
are not entitled to pick out the first reason as the ratio decidendi
and neglect the second, or to pick out the second reason as the
ratio decidendi and neglect the first; we must take both as
B
forming the ground of the judgment.”
So, also, in Cheater v. Cater, (1918) 1 KB 247 (CA) Pickford,
L.J., after citing a passage from the judgment of Mellish, L.J.,
in Erskine v. Adeane, (1873) LR 8 Ch App 756, said: (Cheater
case, KB p. 252)
C
“… That is a distinct statement of the law and not a dictum. It
is the second ground given by the Lord Justice for his judgment.
If a Judge states two grounds for his judgment and bases his
decision upon both, neither of those grounds is a dictum.”
D (at page 741)
The said judgment has been followed in State of Gujarat v.
Manoharsinhji Pradyumansinhji Jadeja, (2013) 2 SCC 300 (at
paragraphs 78 and 79) and in Shayara Bano v. Union of India, (2017)
9 SCC 1 (at footnote 65).
E 30. Obviously, there were two reasons for discarding the appellant’s
argument in Atlas (supra) – the first reason was clearly on merits. The
second reason undoubtedly refused to entertain this plea as it had not
been raised earlier. However, this was coupled with the fact that the
parties participated in the arbitral proceedings and suffered an award,
F after which such plea was then taken. We are, therefore, unable to
accede to the contention of Mr. Himani that this case cannot be regarded
as an authority for the proposition that sections 23 and 28 of the Contract
Act are out of harm’s way when it comes to enforcing a foreign award
under the Foreign Awards Act, 1961, where both parties are Indian
companies.
G
31. It is interesting to note that under U.S. law, an arbitration
agreement or award made between two U.S. citizens shall not fall under
the New York Convention unless such relationship involves properties
located abroad, envisages performance of a contract, entered in the
U.S., to take place abroad, or has some reasonable connection with one
H
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 585
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
or more foreign states. Thus, section 202 of the Federal Arbitration Act A
[Title 9, U.S. Code] states as follows:
“Section 202.Agreement or award falling under the
Convention—An arbitration agreement or arbitral award
arising out of a legal relationship, whether contractual or not,
which is considered as commercial, including a transaction, B
contract, or agreement described in section 2 of this title, falls
under the Convention. An agreement or award arising out of
such a relationship which is entirely between citizens of the
United States shall be deemed not to fall under the Convention
unless that relationship involves property located abroad,
envisages performance or enforcement abroad, or has some C
other reasonable relation with one or more foreign states. For
the purpose of this section a corporation is a citizen of the
United States if it is incorporated or has its principal place of
business in the United States.”
32. It is important to note that no such caveat is entered when D
India acceded to the New York Convention and enacted the Foreign
Awards Act and the Arbitration Act, 1996. On the contrary, we have
seen as to how “persons” mentioned in section 44 has no reference to
nationality, residence or domicile. This is another important pointer to
the fact that, unlike the U.S. Code, section 44 of the Arbitration Act E
does not enter any such caveat.
33. In Sasan I (supra), the dispute resolution clause contained in
the contract between two Indian companies was set out in paragraph 33
of the judgment as follows:
“33. However, Article 12 deals with the governing law and a F
dispute resolution mechanism. Section 12.1 and 12.2(a), which
are relevant, read as under:
“Section 12.1-Governing Law – This Agreement shall be
governed by, and construed and interpreted in accordance with,
the laws of the United Kingdom without regard to its conflicts G
of law principles.
Section 12.2-Dispute Resolution
Arbitration
H
586 SUPREME COURT REPORTS [2021] 4 S.C.R.
A (a) Any and all claims, disputes, questions or controversies
involving Reliance on the one hand and NAC on the other
hand arising out of or in connection with this Agreement
(collectively, ‘Disputes’) which cannot be finally resolved by
such parties within 60(sixty) days of arising by amicable
negotiation shall be resolved by final and binding arbitration to
B
be administered by the International Chamber of Commerce
(the ‘ICC’) in accordance with its commercial arbitration rules
then in effect (the ‘Rules’). The place of arbitration shall be
London, England. Each party shall appoint one (1) arbitrator
and the two (2) arbitrators so appointed shall together select
C and appoint a third arbitrator. If either Reliance, on the one
hand, or NAC, on the other hand, fail to appoint their respective
arbitrator within 30(thirty) days after receipt by respondent(s)
of the demand for arbitration or if the two (2) party-appointed
arbitrators are unable to appoint the chairperson of the arbitral
tribunal within thirty (30) days of the appointment of the second
D
arbitrator, then the ICC shall appoint such arbitrator or the
chairperson, as the case may be, in accordance with the listing,
ranking and striking provisions of the Rules. Save and except
the provision under Section 9, the provisions of the Part 1 of
(Indian) Arbitration and Conciliation Act, 1996, as amended
E (the ‘Arbitration Act’) shall not apply to the arbitration. The
arbitrators shall not award punitive, exemplary, multiple or
consequential damages. In connection with the arbitration
proceedings, the parties hereby agree to cooperate in good
faith with each other and the arbitral tribunal and to use their
respective best efforts to respond promptly to any reasonable
F
discovery demand made by such party and the arbitral tribunal.’
Sub-clause (d) of this Article deals with payments to be made by
the parties for the purpose of Arbitration.
‘(d) Each party shall bear its own arbitration expenses, and
G Reliance on the one hand, and NAC, on the other hand, shall
pay one-half of the ICC’s and the chairperson’s fees and
expenses, unless the arbitrators determine that it would be
equitable if all or a portion of the prevailing party’s expenses
should be borne by the other party. Unless the Award provides
for non-monetary remedies, any such Award shall be made
H
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and shall be promptly payable in (i) US Dollars if payable to A
NAC or (ii) Rupees if paid to Reliance net of any tax or other
deduction. The Award shall include interest from the date of
any breach or other violation of this Agreement and the rate of
interest shall be specified by the arbitral tribunal and shall be
calculated from the date of any such breach or other violation
B
to the date when the Award is paid in full.’”
The Court then referred to BALCO (supra) and held:
“46. Finally, in paragraph 118 [Bharat Aluminium Co. v. Kaiser
Aluminium Technical Services Inc., (2012) 9 SCC 552], the crucial
part heavily relied upon by Shri. V.K. Tankha, learned Senior C
Advocate, reference is made to section 28, and it is held as under:
‘118. It was submitted by the learned counsel for the appellants
that Section 28 is another indication of the intention of
Parliament that Part I of the Arbitration Act, 1996 was not
confined to arbitrations which take place in India. We are unable D
to accept the submissions made by the learned counsel for the
parties. As the heading of Section 28 indicates, its only purpose
is to identify the rules that would be applicable to ‘substance
of dispute’. In other words, it deals with the applicable conflict
of law rules. This section makes a distinction between purely
domestic arbitrations and international commercial arbitrations, E
with a seat in India. Section 28(1)(a) makes it clear that in an
arbitration under Part I to which section 2(1)(f) does not apply,
there is no choice but for the Tribunal to decide ‘the dispute’
by applying the Indian ‘substantive law applicable to the
contract’. This is clearly to ensure that two or more Indian F
parties do not circumvent the substantive Indian law, by
resorting to arbitrations. The provision would have an
overriding effect over any other contrary provision in such
contract. On the other hand, where an arbitration under Part I
is an international commercial arbitration within Section 2(1)(f),
the parties would be free to agree to any other ‘substantive G
law’ and if not so agreed, the ‘substantive law’ applicable would
be as determined by the Tribunal. The section merely shows
that the legislature has segregated the domestic and international
arbitration. Therefore, to suit India, conflict of law rules have
been suitably modified, where the arbitration is in India. This H
588 SUPREME COURT REPORTS [2021] 4 S.C.R.
A will not apply where the seat is outside India. In that event,
the conflict of law rules of the country in which the
arbitration takes place would have to be applied. Therefore,
in our opinion, the emphasis placed on the express ‘where the
place of arbitration is situated in India’, by the learned Senior
Counsel for the appellants, is not indicative of the fact that the
B
intention of Parliament was to give an extra-territorial operation
to Part I of the Arbitration Act, 1996.’
(emphasis in original)
47. Hon’ble Supreme Court holds that section 28 makes a clear
C distinction between purely domestic arbitration and international
arbitration with a seat in India, and it is indicated that section
28(1)(a) makes it clear that in an arbitration under Part I to which
section 2(1)(f) does not apply, there is no choice but for the Tribunal
to decide the dispute by applying the Indian substantive law
applicable to the Contract. It is this part of the judgment which
D was heavily relied upon by Shri. V.K. Tankha, learned Senior
Advocate further refers to the next sentence which says that two
or more Indian parties cannot circumvent the substantive Indian
Law by resorting to arbitration. By placing much emphasis on this
part, learned Senior Advocate tried to indicate that the order of
E the learned District Judge is unsustainable.
48. However, if we further read the findings recorded by the
Supreme Court in the same paragraph 118, as reproduced
hereinabove, it is held by the Supreme Court that when the seat is
outside India, the conflict of law rule of the country in which the
F arbitration takes place would have to be applied, and thereafter it
is held that the expression ‘whether the place of arbitration is
situated in India’ does not indicate the intention of the Parliament
to give extra territorial operation to Part I, of the Arbitration Act
of 1996. In paragraph 123 also, the matter has been considered in
the backdrop of the provisions contemplated under section 28,
G this also makes us to come to the inevitable conclusion that the
provisions of Part I will not apply where the seat of arbitration is
outside India.
49. On consideration of the law laid down in the case of TDM
Infrastructure (supra), we find, that the proceeding before the
H
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Hon’ble Supreme Court was with regard to appointing an arbitrator A
under section 11(6) and after taking note of the definition of
International Commercial Arbitration as provided in section 2(1)(f),
the procedure for appointment of arbitrator and the provision of
section 28, it was held that Part I of the Act of 1996 deals with
domestic arbitration and Part II deals with ‘foreign award’, and
B
by specifically taking note of the provisions of section 28, has held
that companies incorporated in India and when both the parties
have Indian nationality, then such arbitration cannot be said to be
an international commercial arbitration. However, after having
said so, in paragraph 23 reference is made to section 28, the
intention of the legislature, to hold that two Indian nationals should C
not be permitted to derogate Indian Law.
50. Finally, in para 23 the following observations are made by the
Supreme Court in the aforesaid case:
‘23. Section 28 of the 1996 Act is imperative in character in
view of Section 2(6) thereof, which excluded the same from D
those provisions which parties derogate from (if so provided
by the Act). The intention of the legislature appears to be
clear that Indian nationals should not be permitted to
derogate from Indian Law. This is part of the public policy
of the country. E
36. It is, however, made clear that any findings/observations
made hereinbefore were only for the purpose of determining
the jurisdiction of this Court as envisaged under Section 11 of
the 1996 Act and not for any other purpose.’
(emphasis in original) F
51. If we analyse this judgment, we find, that apart from being
one rendered in a proceeding held under section 11(6), is based
on the consideration made with reference to section 28(1), as is
evident from paragraph 23 relied upon by Shri. V.K. Tankha and
thereafter in paragraph 36, a caution is indicated with regard to G
applicability of this judgment. Whereas in the case of Atlas
Exports (supra), we find that in Atlas Exports, in paragraphs 10
and 11, the following principles have been laid down:-
‘10. It was however contended by the learned counsel for the
appellant that the award should have been held to be H
590 SUPREME COURT REPORTS [2021] 4 S.C.R.
A unenforceable in as much as the very contract between
the parties relating to arbitration was opposed to public
policy under Section 23 read with Section 28 of the
Contract Act. It was submitted that Atlas and Kotak, the
parties between whom the dispute arose, are both Indian
parties and the contract which had the effect of compelling
B
them to resort to arbitration by foreign arbitrators and
thereby impliedly excluding the remedy available to them
under the ordinary law of India should be held to be
opposed to public policy. Under section 23 of the Indian
Contract Act the consideration or object or an agreement is
C unlawful if it is opposed to public policy. Section 28 and Exception
1 to it, (which only is relevant for the purpose of this case) are
extracted and reproduced hereunder:
‘28. Every agreement, by which any party thereto is restricted
absolutely from enforcing his rights under or in respect of any
D contract, by the usual legal proceedings in the ordinary tribunals,
or which limits the time within which he may thus enforce his
rights, is void to that extent.
Exception 1 - This section shall not render illegal a contract,
by which two or more persons agree that any dispute which
E may arise between them in respect of any subject or class of
subjects shall be referred to arbitration, and that only the
amount awarded in such arbitration shall be recoverable in
respect of the dispute so referred.’
11. The case at hand is clearly covered by Exception 1 to Section
F 28. Right of the parties to have recourse to legal action is not
excluded by the agreement. The parties are only required to have
their dispute/s adjudicated by having the same referred to
arbitration. Merely because the arbitrators are situated in a
foreign country cannot by itself be enough to nullify the
arbitration agreement when the parties have with their eyes
G open willingly entered into the agreement. Moreover, in the
case at hand the parties have willing initiated the arbitration
proceedings on the disputes having arisen between them. They
have appointed arbitrators, participated in arbitration proceedings
and suffered an award. The plea raised before us was not raised
H either before or during the arbitration proceedings, nor before the
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learned Single Judge of the High Court in the objections filed before A
him, nor in the letters patent appeal filed before the Division Bench.
Such a plea is not available to be raised by the appellant Atlas
before this Court for the first time.’
(emphasis in original)
52. In this case i.e. Atlas Exports (supra), Sections 23 and 28 of B
the Contract Act are considered and it is held that when a dispute
arises where both the parties are Indian, and if the contract has
the effect of compelling them to resort to arbitration by foreign
arbitrators and thereby impliedly excluding the remedy available
to them under the ordinary law of India, the same is not opposed C
to public policy. Section 28 exception (1) of the Contract Act is
taken note of and it is held that merely because the arbitrators are
situated in a foreign country that by itself cannot be enough to
nullify the arbitration agreement, when the parties have with their
eyes open, willingly entered into an agreement. If this observation
made by the Supreme Court is taken note of, we find that merely D
because two Indian companies have entered into an arbitration
agreement to be held in a foreign country by agreed arbitrators,
that by itself is not enough to nullify the arbitration agreement.
53. Shri. V.K. Tankha, learned Senior Advocate, tried to indicate
that Atlas Exports (supra) case was rendered in a proceeding E
held under the Arbitration Act, 1940 which is entirely different
from the Act of 1996 and, therefore, the said judgment will not
apply in the present case. Instead, the judgment in the case of TDM
Infrastructure (supra) would be applicable.
54. We cannot accept the aforesaid proposition. Shri Anirudh F
Krishnan, learned counsel, had taken us through the provisions of
both the Act of 1940 and the Act of 1996, and thereafter he had
referred to the judgment of the Supreme Court in the case
of Fuerst Day Lawson Limited (supra), where after a detailed
comparison of various sections of both the Acts, from paragraphs G
65 onwards, Hon’ble Supreme Court discussed the provisions of
both Acts, and finally has observed that there is not much of a
difference between them. If the aforesaid judgment in the case
of Fuerst Day Lawson Limited (supra) is considered, the same
holds that both, the Act of 1980 [sic 1940] and 1996 are identical
and the Hon’ble Court has also indicated the similarity in both the H
592 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Acts. That being so, we see no reason as to why the principle laid
down of Atlas Exports (supra), which is by a Larger Bench i.e..
Division Bench, should not be applied particularly in the light of
the law of precedent as laid down in the case of A.R.
Antulay (supra). The contention of Shri. V.K. Tankha, learned
Senior Advocate, that the learned District Judge relied upon the
B
judgment in the case of Atlas Exports (supra) and refused to rely
upon the case of TDM Infrastructure (supra) only because it is
by a Single Bench is not convincing or acceptable, as the Division
Bench Judgment in the case of Atlas Exports (supra) is a binding
precedent and once it is held in the aforesaid case that two Indian
C companies can agree to arbitrate in a foreign country and the
same is not hit by public policy, we see no error in the order passed
by the learned District Judge.
55. That apart, we also find that in the case of TDM
Infrastructure (supra), a note of caution is indicated in paragraph
D 36, which was added by a corrigendum subsequent to
pronouncement of judgment, this clearly indicates the principle
laid down by the Supreme Court was only for determining the
jurisdiction under section 11 and nothing more. We need not go
into the questions any further now, as we find that the judgment in
the case of Atlas Exports (supra) is a binding precedent.
E
56. Various other contentions were also advanced by Shri. Anirudh
Krishnan, learned counsel, to say that the judgment in the case
of TDM Infrastructure (supra) is not by a Court and, therefore,
the provision of Article 141 of the Constitution will not apply. Once
we have held that the principle of law laid down by the Supreme
F Court in the case of Atlas Exports (supra) is binding on us and is
applicable to the present dispute, we need not go into all these
questions.
57. On going through the scheme of the Arbitration and Conciliation
Act, 1996, we find that based on the seat of arbitration so also the
G nationality of parties, an arbitration is classified to be an
‘International Arbitration’, and the governing law is also determined
on the basis of the seat of arbitration. Therefore, it is clear that
based on the seat of arbitration, the question of permitting two
Indian companies/parties to arbitrate out of India is permissible.
H In the case of Atlas Exports (supra) itself, the principle has been
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settled that two Indians can agree to have a seat of arbitration A
outside India. Now, if two Indian Companies agree to have their
seat of arbitration in a foreign country, the question would be as to
whether the provisions of Part I or Part II would apply. Section
44, of the Act of 1996, contemplates a foreign award to be one
pertaining to difference between persons arising out of legal
B
relationship, whether contractual or not, which is in pursuance to
an agreement in writing for arbitration, to which the convention
set forth in the first schedule applies.
58. In the First Schedule to the Act of 1996, convention on the
recognition and enforcement of foreign award popularly known
as New York Convention has been laid down and admittedly in C
this case the parties have agreed to have an arbitration with its
seat outside India i.e.. London. If that be the position then the
provisions of section 45 would be attracted until and unless it is
established that the agreement is null and void, inoperative or
incapable of being performed. If we analyse the scheme of the D
Arbitration and Conciliation Act, 1996, we find that there is a
distinction between ‘International Commercial Arbitration’ and a
‘Foreign Award’. It is the case of the appellant that in a dispute
between two Indian Parties, which is a domestic arbitration, Part
II and Section 45 of the Act of 1996 will not apply. However,
when we consider the distinction between ‘International E
Commercial Arbitration’ and ‘Foreign Award’, we find that there
is a difference between an International Commercial Arbitration
and an Arbitration which is not an International Commercial
Arbitration. The same is based on the nationality of the parties
and this distinction is only relevant for the purpose of following F
the appointment procedure as contemplated under section 11. As
far as nationality of the parties are concerned, the same has no
applicability for considering the applicability of Part II, of the Act
of 1996. Applicability of Part II is determined solely based on
what is the seat of arbitration, whether it is in a country which is
signatory to the New York Convention. If this requirement is G
fulfilled, Part II will apply and in the present case as this requirement
is fulfilled, we have no hesitation in holding that the dispute in
question is covered by Part II of the Act of 1996.”
***
H
594 SUPREME COURT REPORTS [2021] 4 S.C.R.
A “72. Finally, we may observe that once it is found by us that parties
by mutual agreement have decided to resolve their dispute by
arbitration and when they, on their own, chose to have the seat of
arbitration in a foreign country, then in view of the provisions of
Section 2(2) of the Act of 1996, Part I of the Act, will not apply in
a case where the place of arbitration is not India and if Part I
B
does not apply and if the agreement in question fulfils the
requirement of Section 44 then Part II will apply and when Part II
applies and it is found that agreement is not null or void or
inoperative, the bar created under Section 45 would come into
play and if bar created under Section 45 comes into play then it is
C a case where the Court below had no option but to refer the
parties for arbitration as the bar under Section 45 would also apply
and the suit itself was not maintainable.”
This statement of the law has our approval. It may only be
mentioned that the judgment in Fuerst Day Lawson Ltd. v. Jindal
D Exports Ltd., (2011) 8 SCC 333 [“Fuerst Day Lawson”], referred to
the provisions of the Foreign Awards Act, 1961 and Part II of the
Arbitration Act of 1996 and not the Arbitration Act, 1940, as has been
incorrectly held in paragraphs 53 and 54 of the aforesaid judgment. In
addition, it may only be mentioned that the judgment of this Court by a
learned Single Judge, under section 11 of the Arbitration Act, in TDM
E (supra) cannot, in any case, be regarded as a binding precedent, having
been delivered by a Single Judge appointing an arbitrator under section
11 – see State of West Bengal v. Associated Contractors, (2015) 1
SCC 32 (at paragraph 17).
34. The Bombay High Court has referred to and relied upon TDM
F (supra) to arrive at the opposite conclusion of Sasan I (supra). Thus, in
Seven Islands Shipping Ltd. v. Sah Petroleums Ltd., (2012) 5 Mah
LJ 822, one of us (Gavai, J.) sitting as Single Judge of the Bombay High
Court, after placing reliance on TDM (supra), held:
“13. Mandate of section 45 to refer a dispute to the Arbitrator is
G also on a condition that the said agreement has to be a legal
agreement. When the Apex Court, in unequivocal terms has held
that when both the Companies are incorporated in India an
agreement cannot be termed as an “International Arbitration
Agreement”, I am of the view that since both the plaintiff and the
H defendants are companies incorporated in India even for the sake
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CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
of argument, there is an arbitration agreement, it cannot be an A
“International Arbitration Agreement” and as such not valid in
law. However, I may clarify that I have not gone through the
question whether in fact there is an arbitration agreement between
the parties or not.”
35. Likewise, another learned Single Judge of the Bombay High B
Court, in M/s. Addhar Mercantile Pvt. Ltd. v. Shree Jagadamba
Agrico Exports Pvt. Ltd., Arbitration Application No. 197 of 2014
(decided on 12.06.2015), after referring to TDM (supra), then held:
“8. It is not in dispute that both parties are from India. A perusal
of clause 23 clearly indicates that intention of both parties is clear C
that the arbitration shall be either in India or in Singapore. If the
seat of the arbitration would have be at Singapore, certainly English
law will have to be applied. Supreme Court in case of TDM
Infrastructure Private Limited (supra) has held that the intention
of the legislature would be clear that Indian nationals should not
be permitted to derogate from Indian law. This is part of the public D
policy of the country.
9. Insofar as submission of the learned counsel for the respondent
that if such provision is interpreted in the manner in which it is
canvassed by the learned counsel for the applicant, it would be in
violation of section 28(1)(a) is concerned, since I am of the view E
that the arbitration has to be conducted in India, under section
28(1)(a), the arbitral tribunal will have to decide the disputes in
accordance with the substantive law for the time being in force in
India. In my view the said agreement which provides for arbitration
in India thus does not violate section 28(1)(a) as canvassed by the F
learned counsel for the respondent.”
36. Both these decisions rely on the judgment of this Court in
TDM (supra) and have not appreciated the law in its correct perspective
and, therefore, stand overruled. On the other hand, a learned Single
Judge of the Delhi High Court in GMR Energy Limited v. Doosan G
Power Systems India, CS (COMM) 447/2017 (decided on 14.11.2017),
considered the same question and followed the judgment of the Madhya
Pradesh High Court in Sasan I (supra) – see paragraphs 29, 30 and 31.
It distinguished the judgment in TDM (supra) correctly, as follows:
H
596 SUPREME COURT REPORTS [2021] 4 S.C.R.
A “33. However, in para-36 of TDM Infrastructure (supra) Supreme
Court clarified that any findings/observations made hereinabove
were only for the purpose of determining the jurisdiction of the
Court as envisaged under Section 11 of the 1996 Act and not for
any other purpose and is also evident from the conclusions noted
in para 20 and 22 of the report. Thus GMR Energy cannot rely
B
upon the decision in TDM Infrastructure (supra) to contend that
in the present case Part-I of the Arbitration Act would apply and
not Part-II.”
The learned Single Judge of the Delhi High Court then relied upon
this Court’s judgment in Atlas (supra) in paragraph 41. In paragraph 43,
C the learned Single Judge then referred to the table that is set out in
Fuerst Day Lawson (supra) as follows:
“43. Contention of learned counsel for GMR Energy that the
judgment in Atlas (supra) was given prior to Arbitration and
D Conciliation Act, 1996, and therefore not applicable to the present
case, also deserves to be rejected in view of the decision of the
Supreme Court reported as (2011) 8 SCC 333 Fuerst Day
Lawson v. Jindal Exports Ltd. wherein comparing the pre
amendment and post amendment Arbitration Act it was observed
that the new Act is more favourable to international arbitration
E than its previous incarnation. The report comparing the provisions
of the two Acts noted:
64. The provisions of Chapter I of Part II of the 1996 Act
along with the provisions of the Foreign Awards (Recognition
and Enforcement) Act, 1961, insofar as relevant for the present
F are placed below in a tabular form:
G
H
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CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
A
B
C
D
E
F
G
H
598 SUPREME COURT REPORTS [2021] 4 S.C.R.
A
B
C
D
E
F
G
H
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 599
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
A
B
C
D
E
F
G
H
600 SUPREME COURT REPORTS [2021] 4 S.C.R.
A
B
65. A comparison of the two sets of provisions would show
that Section 44, the definition clause in the 1996 Act is a
C verbatim reproduction of Section 2 of the previous Act (but
for the words “chapter” in place of “Act”, “First Schedule”
in place of “Schedule” and the addition of the word “arbitral”
before the word “award” in Section 44). Section 45
corresponds to Section 3 of the previous Act.
D 66. Section 46 is a verbatim reproduction of Section 4(2)
except for the substitution of the word “chapter” for “Act”.
Section 47 is almost a reproduction of Section 8 except for
the addition of the words “before the court” in sub-section
(1) and an Explanation as to what is meant by “court” in that
section.
E
67. Section 48 corresponds to Section 7; Section 49 to Section
6(1) and Section 50 to Section 6(2).
68. Apart from the fact that the provisions are arranged in a
far more orderly manner, it is to be noticed that the provisions
of the 1996 Act are clearly aimed at facilitating and expediting
F
the enforcement of the New York Convention Awards.
69. Section 3 of the 1961 Act dealing with a stay of
proceedings in respect of matters to be referred to arbitration
was confined in its application to “legal proceedings in any
court” and the court had a wider discretion not to stay the
G proceedings before it. The corresponding provision in Section
45 of the present Act has a wider application and it covers an
action before any judicial authority. Further, under Section
45 the judicial authority has a narrower discretion to refuse
to refer the parties to arbitration.”
H
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CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
The learned Single Judge thereafter arrived at the conclusion, on A
the facts of that case, that the arbitral award delivered in Singapore
between the two Indian parties would be enforceable under Part
II, and not Part I, of the Arbitration Act.
37. Likewise, a learned Single Judge of the Delhi High Court, in
Dholi Spintex v. Louis Dreyfus, CS (COMM) 286/2020 (decided on B
24.11.2020), had occasion to consider the same point of law, and after
referring to Sasan I (supra), correctly held:
“43. Learned counsel for the plaintiff has heavily relied upon
Section 23 of the Contract Act which provides for considerations
and object which are lawful and which are not, thus emphasizing C
that two Indian parties contracting out of Indian law would defeat
the provisions of the law and would be opposed to public policy.
Learned counsel for the plaintiff seeks either declaration of Clause
6 of the agreement between the parties as null and void or by
applying the Blue Pencil Test give meaningful interpretation to
clause-6 whereby the parties can then subject themselves to the D
jurisdiction of Indian Cotton Association. Three Judge Bench of
the Hon’ble Supreme Court in (2017) 2 SCC 228 Centrotrade
Minerals and Metal Inc. v. Hindustan Copper Ltd. emphasized
the principle of party autonomy in arbitration and held that the
same is virtually the backbone which permit parties to adopt the E
foreign law as the proper law of arbitration. In (2005) 5 SCC 465
Technip SA v. SMS Holding Pvt. Limited, a three Judge Bench
of the Hon’ble Supreme Court dealing with the conflicts of law
held that disregard of applicability of foreign law must relate to
basic principles of morality and justice and only when the foreign
law amounts to a flagrant or gross breach of such principle that F
power should be exercised to hold inapplicability of foreign law
that too, exceptionally and with great circumspection. It was held
that in a sense all statutes enacted by Parliament or the States
can be said to be part of Indian public policy, but to discard a
foreign law only because it is contrary to an Indian statute would G
defeat the basis of private international law to which India
undisputedly subscribes.
***
47. Therefore, an arbitration agreement between the parties being
an agreement independent of the substantive contract and the H
602 SUPREME COURT REPORTS [2021] 4 S.C.R.
A parties can choose a different governing law for the arbitration,
two Indian parties can choose a foreign law as the law governing
arbitration. Further there being clearly a foreign element to the
agreement between the parties, the two Indian parties, that is the
plaintiff and defendant could have agreed to an international
commercial arbitration governed by the laws of England. Hence
B
Clause 6 of the contract dated 30th May, 2019 between the parties
is not null or void.”
The argument of the appellant based on sections 23 and 28
of the Contract Act
C 38. Mr. Himani has argued that even if Atlas (supra) is to be
taken to be a binding precedent, it contains no discussion on how section
23 of the Contract Act is not infracted and does not, in any case, deal
with his argument based on section 28(1)(a) and section 34(2A) of the
Arbitration Act. Sections 23 and 28 of the Contract Act read as follows:
D “23. What considerations and objects are lawful, and what
not.—The consideration or object of an agreement is lawful,
unless—
it is forbidden by law; or
is of such a nature that, if permitted, it would defeat the
E provisions of any law; or
is fraudulent; or
involves or implies injury to the person or property of another;
or the Court regards it as immoral, or opposed to public policy.
F In each of these cases, the consideration or object of an agreement
is said to be unlawful. Every agreement of which the object or
consideration is unlawful, is void.”
“28. Agreements in restraint of legal proceedings void.—
Every agreement,—
G (a) by which any party thereto is restricted absolutely from
enforcing his rights under or in respect of any contract, by
the usual legal proceedings in the ordinary tribunals, or which
limits the time within which he may thus enforce his rights,
or
H
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(b) which extinguishes the rights of any party thereto, or A
discharges any party thereto from any liability, under or in
respect of any contract on the expiry of a specified period
so as to restrict any party from enforcing his rights, is void
to that extent.
Exception 1.—Saving of contract to refer to arbitration B
dispute that may arise.—This section shall not render illegal a
contract, by which two or more persons agree that any dispute
which may arise between them in respect of any subject or class
of subjects shall be referred to arbitration, and that only the amount
awarded in such arbitration shall be recoverable in respect of the
dispute so referred.” C
***
39. The elusive expression “public policy” appearing in section 23
of the Contract Act is a relative concept capable of modification in tune
with the strides made by mankind in science and law. An important early D
judgment of the Court of Appeal, namely, Maxim Nordenfelt Guns
and Ammunition Company v. Nordenfelt, [1893] 1 Ch. 630
[“Nordenfelt”], puts it thus:
“Rules which rest upon the foundation of public policy, not being
rules which belong to the fixed or customary law, are capable, on E
proper occasion, of expansion or modification. Circumstances may
change and make a commercial practice expedient which formerly
was mischievous to commerce. But it is one thing to say that an
occasion has arisen upon which to adhere to the letter of the rule
would be to neglect its spirit, and another to deny that the rule still
exists. The dicta which Lord Justice Fry cites from Hitchcock F
v. Coker [142. 6 A. & E. 348], from Tallis v. Tallis [1 E. & B.
391], and from Mallan v. May [11 M. & W. 653], are all dicta in
cases of partial restraint, where the reasonableness of the
particular contract necessarily came under consideration. The
necessary protection of the individual may in such cases be the G
proper measure of the reasonableness of the bargain. When Lord
Justice Fry passes on [14 Ch. D. 366] to examine the question of
the existence of the common law rule, he assumes, as it appears
to me, without sufficient justification, that complete protection of
the individual is the only reason which ought to lie at the root of
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604 SUPREME COURT REPORTS [2021] 4 S.C.R.
A the doctrine. But the reasonableness of the legal principle which
forbids general restraint altogether is not the same thing as the
reasonableness (as between the parties) of the bargain in any
particular case. With regard to the argument that the rule, if it
existed, would be an artificial one, and would therefore admit of
no exceptions, the judgments of the Judges and of the House of
B
Lords in the case of Egerton v. Earl Brownlow [4 H. L. C. 1],
illustrate, I submit, the distinction between a fixed rule of customary
law and a rule based on reason and policy. The latter may admit
of exceptions, although the former may not.”
(at pages 661-662)
C
***
“The result seems to me to be as follows: General restraints, or, in
other words, restraints wholly unlimited in area, are not, as a rule,
permitted by the law, although the rule admits of exceptions. Partial
D restraints, or, in other words, restraints which involve only a limit
of places at which, of persons with whom, or of modes in which,
the trade is to be carried on, are valid when made for a good
consideration, and where they do not extend further than is
necessary for the reasonable protection of the covenantee. A limit
in time does not, by itself, convert a general restraint into a partial
E one. “That which the lawdoes not allow is not to be tolerated
because it is to last for a short time only.” In considering, however,
the reasonableness of a partial restraint, the time for which it is to
be imposed may be a material element to consider.”
(at pages 662-663)
F
40. The classic judgment of this Court in Gherulal Parakh v.
Mahadeodas Maiya, 1959 Supp (2) SCR 406 [“Gherulal”] states as
follows:
“… Cheshire and Fifoot in their book on Law of Contract 3rd
Edn., observe at p. 280 thus:
G
“The public interests which it is designed to protect are so
comprehensive and heterogeneous, and opinions as to what is
injurious must of necessity vary so greatly with the social and
moral convictions, and at times even with the political views,
of different judges, that it forms a treacherous and unstable
H
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ground for legal decision. … These questions have agitated A
the Courts in the past, but the present state of the law would
appear to be reasonably clear. Two observations may be made
with some degree of assurance.
First, although the rules already established by precedent must be
moulded to fit the new conditions of a changing world, it is no B
longer legitimate for the Courts to invent a new head of public
policy. A judge is not free to speculate upon what, in his opinion, is
for the good of the community. He must be content to apply, either
directly or by way of analogy, the principles laid down in previous
decisions. He must expound, not expand, this particular branch of
the law. C
Secondly, even though the contract is one which prima facie falls
under one of the recognized heads of public policy, it will not be
held illegal unless its harmful qualities are indisputable. The doctrine,
as Lord ATKIN remarked in a leading case, “should only be invoked
in clear cases in which the harm to the public is substantially D
incontestable, and does not depend upon the idiosyncratic
inferences of a few judicial minds … In popular language … the
contract should be given the benefit of the doubt.”
Anson in his Law of Contract states the same rule thus, at p. 216:
E
“Jessel, M.R., in 1875, stated a principle which is still valid for
the Courts, when he said: ‘You have this paramount public
policy to consider, that you are not lightly to interfere with the
freedom of contract ‘; and it is in reconciling freedom of
contract with other public interests which are regarded as of
not less importance that the difficulty in these cases arises …. F
We may say, however, that the policy of the law has, on certain
subjects, been worked into a set of tolerably definite rules.
The application of these to particular instances necessarily varies
with the conditions of the times and the progressive
development of public opinion and morality, but, as Lord Wright G
has said, ‘public policy, like any other branch of the Common
Law, ought to be, and I think is, governed by the judicial use of
precedents. If it is said that rules of public policy have to be
moulded to suit new conditions of a changing world, that is
H
606 SUPREME COURT REPORTS [2021] 4 S.C.R.
A true; but the same is true of the principles of the Common
Law generally.”
In Halsbury’s Laws of England, 3rd Edn., Vol. 8, the doctrine is
stated at p. 130 thus:
“Any agreement which tends to be injurious to the public or against
B the public good is void as being contrary to public policy…. It
seems, however, that this branch of the law will not be extended.
The determination of what is contrary to the so-called policy of
the law necessarily varies from time to time. Many transactions
are upheld now which in a former generation would have been
C avoided as contrary to the supposed policy of the law. The rule
remains, but its application varies with the principles which for
the time being guide public opinion.” …”
(at pages 432-434)
***
D
“… The doctrine of public policy may be summarized thus: Public
policy or the policy of the law is an illusive (sic elusive) concept;
it has been described as “untrustworthy guide”, “variable quality”,
“uncertain one”, “unruly horse”, etc; the primary duty of a Court
of Law is to enforce a promise which the parties have made and
E to uphold the sanctity of contracts which form the basis of society,
but in certain cases, the Court may relieve them of their duty on a
rule founded on what is called the public policy; for want of better
words Lord Atkin describes that something done contrary to public
policy is a harmful thing, but the doctrine is extended not only to
F harmful cases but also to harmful tendencies; this doctrine of public
policy is only a branch of common law, and, just like any other
branch of common law, it is governed by precedents; the principles
have been crystallized under different heads and though it is
permissible for Courts to expound and apply them to different
situations, it should only be invoked in clear and incontestable cases
G of harm to the public; though the heads are not closed and though
theoretically it may be permissible to evolve a new head under
exceptional circumstances of a changing world, it is advisable in
the interest of stability of society not to make any attempt to
discover new heads in these days.”
H (at pages 439-440)
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41. This judgment has been referred to with approval in several A
subsequent decisions. Thus, in Murlidhar Aggarwal v. State of U.P.,
(1974) 2 SCC 472, this Court held:
“30. ”Public Policy” has been defined by Winfield as “a principle
of judicial legislation or interpretation founded on the current needs
of the community” [Percy H. Winfield, Public Policy in English B
Common Law, 42 Harvard Law Rev. 76]. Now, this would show
that the interests of the whole public must be taken into account;
but it leads in practice to the paradox that in many cases what
seems to be in contemplation is the interest of one section only of
the public, and a small section at that. The explanation of the
paradox is that the courts must certainly weigh the interests of C
the whole community as well as the interests of a considerable
section of it, such as tenants, for instance, as a class as in this
case. If the decision is in their favour, it means no more than that
there is nothing in their conduct which is prejudicial to the nation
as a whole. Nor is the benefit of the whole community always a D
mere tacit consideration. The courts may have to strike a balance
in express terms between community interests and sectional
interests. So, here we are concerned with the general freedom of
contract which everyone possesses as against the principle that
this freedom shall not be used to subject a class, to the harassment
of suits without valid or reasonable grounds. Though there is E
considerable support in judicial dicta for the view that courts cannot
create no (sic) new heads of public policy [Gherulal
Parekh v. Mahadeodas Maiya, 1959 Supp (2) SCR 406, 440] ,
there is also no lack of judicial authority for the view that the
categories of heads of public policy are not closed and that there F
remains a broad field within which courts can apply a variable
notion of policy as a principle of judicial legislation or interpretation
founded on the current needs of the community [Dennis Lloyd,
Public Policy (1953) pp. 112 & 113.].”
42. In Union of India v. Gopal Chandra Misra, (1978) 2 SCC G
301, this Court held:
“38. It must be remembered that the doctrine of public policy is
only a branch of the common law, and its principles have been
crystallised and its scope well delineated by judicial precedents. It
is sometimes described as “a very unruly horse”. Public policy, as H
608 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Burroughs, J. put it in Fauntleroy case [Amicable
Society v. Boeland, (1830) 4 Bligh, (NS) 194 : 2 Dow & C11] ,
“is a restive horse and when you get astride of it, there is no
knowing where it will carry you”. Public policy can, therefore, be
a very unsafe, questionable and unreliable ground for judicial
decision and courts cannot, but be very cautious to mount this
B
treacherous horse even if they must. This doctrine, as pointed out
by this Court in Gherulal Parakh case [AIR 1959 SC 781 : 1959
Supp 2 SCR 406] (ibid.), can be applied only in a case where
clear and undeniable harm to the public is made out. To quote the
words of Subba Rao, J. (as he then was):
C Though theoretically it may be permissible to evolve a new
head (of public policy) under exceptional circumstances of a
changing world, it is advisable in the interest of stability of
society not to make any attempt to discover new heads in these
days.
D There are no circumstances, whatever, which would show that
the withdrawal of the resignation by the appellant would cause
harm to the public or even to an individual. The contention,
therefore, is repelled.”
43. This Court’s judgment in Central Inland Water Transport
E Corpn. v. Brojo Nath Ganguly, (1986) 3 SCC 156, after referring to
the case law on the subject, then held:
“92. The Indian Contract Act does not define the expression “public
policy” or “opposed to public policy”. From the very nature of
things, the expressions “public policy”, “opposed to public policy”,
F or “contrary to public policy” are incapable of precise definition.
Public policy, however, is not the policy of a particular government.
It connotes some matter which concerns the public good and the
public interest. The concept of what is for the public good or in
the public interest or what would be injurious or harmful to the
G public good or the public interest has varied from time to time. As
new concepts take the place of old, transactions which were once
considered against public policy are now being upheld by the courts
and similarly where there has been a well-recognized head of
public policy, the courts have not shirked from extending it to new
transactions and changed circumstances and have at times not
H
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CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
even flinched from inventing a new head of public policy. There A
are two schools of thought— “the narrow view” school and “the
broad view” school. According to the former, courts cannot create
new heads of public policy whereas the latter countenances judicial
law-making in this area. The adherents of “the narrow view”
school would not invalidate a contract on the ground of public
B
policy unless that particular ground had been well-established by
authorities. Hardly ever has the voice of the timorous spoken more
clearly and loudly than in these words of Lord Davey
in Janson v. Driefontein Consolidated Gold Mines Ltd. [(1902)
AC 484, 500]: “Public policy is always an unsafe and treacherous
ground for legal decision”. That was in the year 1902. Seventy- C
eight years earlier, Burrough, J., in Richardson v. Mellish [(1824)
2 Bing 229, 252 : 130 ER 294, 303 and (1824-34) All ER 258, 266]
described public policy as “a very unruly horse, and when once
you get astride it you never know where it will carry you”. The
Master of the Rolls, Lord Denning, however, was not a man to
D
shy away from unmanageable horses and in words which conjure
up before our eyes the picture of the young Alexander the Great
taming Bucephalus, he said in Enderby Town Football Club
Ltd. v. Football Assn. Ltd. [(1971) Ch 591, 606]: “With a good
man in the saddle, the unruly horse can be kept in control. It can
jump over obstacles.” Had the timorous always held the field, not E
only the doctrine of public policy but even the common law or the
principles of Equity would never have evolved. Sir William
Holdsworth in his History of English Law Vol. III, p. 55, has
said:
“In fact, a body of law like the common law, which has grown F
up gradually with the growth of the nation, necessarily acquires
some fixed principles, and if it is to maintain these principles it
must be able, on the ground of public policy or some other like
ground, to suppress practices which, under ever new disguises,
seek to weaken or negative them.”
G
It is thus clear that the principles governing public policy must be
and are capable, on proper occasion, of expansion or modification.
Practices which were considered perfectly normal at one time
have today become obnoxious and oppressive to public
conscience. If there is no head of public policy which covers a
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610 SUPREME COURT REPORTS [2021] 4 S.C.R.
A case, then the court must in consonance with public conscience
and in keeping with public good and public interest declare such
practice to be opposed to public policy. Above all, in deciding any
case which may not be covered by authority our courts have before
them the beacon light of the Preamble to the Constitution. Lacking
precedent, the court can always be guided by that light and the
B
principles underlying the Fundamental Rights and the Directive
Principles enshrined in our Constitution.”
44. Likewise, in Rattan Chand Hira Chand v. Askar Nawaz
Jung, (1991) 3 SCC 67, this Court took the view that:
C “17. I am in respectful agreement with the conclusion arrived at
by the High Court. It cannot be disputed that a contract which
has a tendency to injure public interests or public welfare is one
against public policy. What constitutes an injury to public interests
or welfare would depend upon the times and climes. The social
milieu in which the contract is sought to be enforced would decide
D the factum, the nature and the degree of the injury. It is contrary
to the concept of public policy to contend that it is immutable,
since it must vary with the varying needs of the society. What
those needs are would depend upon the consensus value judgments
of the enlightened section of the society. These values may
E sometimes get incorporated in the legislation, but sometimes they
may not. The legislature often fails to keep pace with the changing
needs and values nor is it realistic to expect that it will have provided
for all contingencies and eventualities. It is, therefore, not only
necessary but obligatory on the courts to step in to fill the lacuna.
When courts perform this function undoubtedly they legislate
F judicially. But that is a kind of legislation which stands implicitly
delegated to them to further the object of the legislation and to
promote the goals of the society. Or to put it negatively, to prevent
the frustration of the legislation or perversion of the goals and
values of the society. So long as the courts keep themselves
G tethered to the ethos of the society and do not travel off its course,
so long as they attempt to furnish the felt necessities of the time
and do not refurbish them, their role in this respect has to be
welcomed.”
45. In Renusagar Power Co. Ltd. v. General Electric Co.,
H 1994 Supp (1) SCC 644, this Court held:
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 611
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
“48. Since the doctrine of public policy is somewhat open-textured A
and flexible, Judges in England have shown certain degree of
reluctance to invoke it in domestic law. There are two conflicting
positions which are referred as the ‘narrow view’ and the ‘broad
view’. According to the narrow view courts cannot create new
heads of public policy whereas the broad view countenances
B
judicial law making in this areas. (See : Chitty on Contracts, 26th
Edn., Vol. I, para 1133, pp. 685-686). Similar is the trend of the
decision in India. In Gherulal Parakh v. Mahadeodas Maiya
[1959 Supp 2 SCR 406 : AIR 1959 SC 781] this Court favoured
the narrow view when it said:
“… though the heads are not closed and though theoretically it C
may be permissible to evolve a new head under exceptional
circumstances of a changing world, it is admissible in the interest
of stability of society not to make any attempt to discover new
heads in these days” (p. 440)
49. In later decisions this Court has, however, leaned towards the D
broad view. [See : Murlidhar Agarwal v. State of U.P. [(1974) 2
SCC 472, 482 : (1975) 1 SCR 575, 584]; Central Inland Water
Transport Corpn. v. Brojo Nath Ganguly [(1986) 3 SCC 156,
217]; Rattan Chand Hira Chand v. Askar Nawaz Jung [(1991)
3 SCC 67, 76-77].]” E
46. In Zoroastrian Coop. Housing Society Ltd. v. District
Registrar, Coop. Societies (Urban), (2005) 5 SCC 632, this Court
held:
“38. It is true that our Constitution has set goals for ourselves and
one such goal is the doing away with discrimination based on F
religion or sex. But that goal has to be achieved by legislative
intervention and not by the court coining a theory that whatever is
not consistent with the scheme or a provision of the Constitution,
be it under Part III or Part IV thereof, could be declared to be
opposed to public policy by the court. Normally, as stated by this G
Court in Gherulal Parakh v. Mahadeodas Maiya [1959 Supp
(2) SCR 406 : AIR 1959 SC 781] the doctrine of public policy is
governed by precedents, its principles have been crystallised under
the different heads and though it was permissible to expound and
apply them to different situations it could be applied only to clear
and undeniable cases of harm to the public. Although, theoretically H
612 SUPREME COURT REPORTS [2021] 4 S.C.R.
A it was permissible to evolve a new head of public policy in
exceptional circumstances, such a course would be inadvisable in
the interest of stability of society.”
47. In State of Rajasthan v. Basant Nahata, (2005) 12 SCC 77,
this Court held:
B “39. The principles have been crystallised under different heads
and though it may be possible for the courts to expound and apply
them to different situations but it is trite that the said doctrine
should not be taken recourse to in “clear and incontestable cases
of harm to the public though the heads are not closed and though
C theoretically it may be permissible to evolve a new head under
exceptional circumstances of a changing world”. (See Gherulal
Parakh v. Mahadeodas Maiya [1959 Supp (2) SCR 406 : AIR
1959 SC 781].)”
48. In Vodafone International Holdings BV v. Union of India,
D (2012) 6 SCC 613, this Court held:
“263. This Court in Gherulal Parakh v. Mahadeodas Maiya
[AIR 1959 SC 781 : 1959 Supp (2) SCR 406] held that freedom
of contract can be restricted by law only in cases where it is for
some good of the community. The Companies Act, 1956 or the
E FERA, 1973, RBI Regulation or the IT Act do not explicitly or
impliedly forbid shareholders of a company to enter into
agreements as to how they should exercise voting rights attached
to their shares.”
49. A reading of the aforesaid judgments leads to the conclusion
F that freedom of contract needs to be balanced with clear and undeniable
harm to the public, even if the facts of a particular case do not fall within
the crystallised principles enumerated in well-established ‘heads’ of public
policy. The question that then arises is whether there is anything in the
public policy of India, as so understood, which interdicts the party
autonomy of two Indian persons referring their disputes to arbitration at
G a neutral forum outside India.
50. It can be seen that exception 1 to section 28 of the Contract
Act specifically saves the arbitration of disputes between two persons
without reference to the nationality of persons who may resort to
arbitration. It is for this reason that this Court in Atlas (supra) referred
H to the said exception to section 28 and found that there is nothing in
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CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
either section 23 or section 28 which interdicts two Indian parties from A
getting their disputes arbitrated at a neutral forum outside India.
51. However, it was argued by Shri Himani, with specific reference
to section 28(1)(a) and section 34(2A) of the Arbitration Act, that since
two Indian parties cannot opt out of the substantive law of India and
therefore, ought to be confined to arbitrations in India, Indian public policy, B
as reflected in these two sections, ought to prevail. We are unable to
agree with this argument. It will be seen that section 28(1)(a) of the
Arbitration Act, when read with section 2(2), section 2(6) and section 4,
only makes it clear that where the place of arbitration is situated in India,
in an arbitration other than an international commercial arbitration (i.e.
an arbitration where none of the parties, inter alia, happens to be a C
national of a foreign country or habitually resident in a foreign country),
the arbitral tribunal shall decide the dispute in accordance with the
substantive law for the time being in force in India.
52. It can be seen that section 28(1)(a) of the Arbitration Act
makes no reference to an arbitration being conducted between two Indian D
parties in a country other than India, and cannot be held, by some tortuous
process of reasoning, to interdict two Indian parties from resolving their
disputes at a neutral forum in a country other than India.
53. Take the case of an Indian national who is habitually resident
in a country outside India. Any dispute between such Indian national and E
an Indian national who is habitually resident in India would attract the
provisions of section 2(1)(f)(i) and, consequently, section 28(1)(b) of the
Arbitration Act, in which case two Indian nationals would be entitled to
have their dispute decided in India in accordance with the rules of law
designated by the parties as applicable to the substance of the dispute,
which need not be Indian law. This, by itself, is a strong indicator that F
section 28 of the Arbitration Act cannot be read in the manner suggested
by Mr. Himani.
54. Even otherwise, BALCO (supra), which has been referred
to by the Madhya Pradesh High Court in Sasan I (supra), in paragraph
118 thereof specifically indicated that section 28(1)(a) of the Arbitration G
Act will not apply where the seat is outside India as, in that event, the
conflict of law rules of the country in which the arbitration takes place
would have to be applied.
55. Coming to the example given by Shri Himani, namely, that the
application of the Benami Transactions Act cannot be sought to be
H
614 SUPREME COURT REPORTS [2021] 4 S.C.R.
A circumvented by two Indian nationals by resorting to an arbitration in a
seat outside India, it is more than likely that, as in the present case, two
Indian nationals will apply the substantive law of India to disputes between
them which arise from a breach of contract which takes place in India.
Even in the absence of any designation of which rules will apply to the
substance of the dispute, which dispute pertains to transactions concluded
B
in India and breach thereof, the substantive law of India will be applied
by the arbitrator in accordance with the conflict of law rules of the
country in which the arbitration takes place. Dicey, Morris and Collins
on the Conflict of Laws (Sweet & Maxwell, 15th Edn.) states as follows:
“Rule 224 – (1)(a) Where all other elements relevant to the situation
C at the time of the choice are located in a country other than the
country whose law has been chosen, the choice of the parties
shall not be prejudice the application of provisions of the law of
that other country which cannot be derogated from by agreement.”
***
D
“The principle in Ralli Bros.: It has already been seen that at
common law there was thought to be a principle that a contract
(whether lawful by its governing law or not) was, in general, invlaid
in so far as the performance of it was unlawful by the law of the
country where the contract was to be performed (lex loci
E solutionis). This principle as formulated in the second edition of
this work, was adopted by the Court of Appeal in the Ralli Bros
case. There remains a question, however, whether it is a rule of
the conflict of laws (as its formulation would suggest) or is, on the
contrary, a principle of the domestic law of contract relating to
F supervening illegality. The answer affects the question whether
the principle has any application since the incorporation of the
Rome Convention and the enactment of the Rome I Regulation.
It is clear that if an English contract was to be performed abroad,
the English court would refuse to enforce it if its performance
would directly or indirectly violate the law of the place of
G performance. Hence an agreement governed by English law for
the payment in Spain of chartered freight beyond the maximum
permitted by Spanish law did not support an action in England.
Where such a contract was illegal ab initio according to the foreign
law and was made by the parties with the object of defying the
foreign law, its invalidity would often follow from a general principle
H
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of public policy stated below in connection with Rule 229. We are A
here mainly concerned with contracts which are not against the
public policy of this country by reason of their interference with
the friendly relations towards a foreign government, but which
nevertheless involve the doing of something unlawful according
to the law of the country in which the contractual obligation is to
B
be performed, e.g. because performance was rendered illegal by
the lex loci solutionis after the making of the contract. If English
law is the governing law of the contract, the consequences of
illegality, whether initial or supervening, according to the law of
the place of performance will be identical with those which arise
from the initial or supervening illegality according to English C
domestic law of a contract to be performed in England.
For the principle in Ralli Bros, as so understood, to be applicable it
is necessary that “performance includes the doing in a foreign
country of something which the laws of that country make it illegal
to do. What this means is not that performance is excused D
whenever it includes an act in a country whose law makes this
act illegal. It is not enough that performance is excused, or that
the act is unlawful by the law of the country in which it happens
to be done, or that the contract is contrary to public policy according
to the law of the place of performance. It must be “unlawful by
the law of the country in which the act has to be done,” i.e. by the E
law of the country in which, according to its express or implied
terms, the contract is to be performed. It would not matter whether
the person liable to perform would, by doing so, infringe the laws
of the foreign country in which he is resident or carries on business,
or of which he is a national, if the law of that country is neither the F
governing law of the contract nor the lex loci solutionis.
Up to this point the question of the consequences of illegality
according to the lex loci solutionis is covered by authority. It was,
however, doubtful and highly controversial whether, according to
the English rules of the conflict of laws, illegality according to the G
lex loci solution is as such had any effect on the validity or operation
of a contract governed by foreign law and to be performed in a
third country, i.e. in a foreign country other than that of the
governing law. Would an English court enforce a French contract
for the payment in Spain of chartered freight beyond the maximum
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616 SUPREME COURT REPORTS [2021] 4 S.C.R.
A permitted by Spanish law? Would it hold that the consequences of
such illegality were governed by Spanish law, the lex loci solutionis,
or would it leave it to French law, the governing law of the contract,
to determine whether illegality according to the lex loci solutionis
had any, and if so what, effect upon the validity and operation of
the contract?
B
The prevailing academic view was that supervening illegality
according to the law of the place of performance did not as such
prevent an English court from enforcing the contract, unless it
were governed by English law. The principle in Ralli Bros, on this
view, was not a principle of the conflict of laws at all, but merely
C an application of the English domestic rules with regard to the
discharge or suspension of contractual obligations by supervening
illegality, and the illegality of performance under the lex loci
solutionis was no more than a fact to be taken into account by an
English court in judging whether performance had become
D impossible. Whether an English court would enforce a French
contract for the doing in Spain of something which Spanish law
had forbidden after the making of the contract would depend on
French law, and, in particular, on the French law of suspension or
discharge of contracts. There was no direct authority on the point.
In Kahler v. Midland Bank Ltd. Lord Reid said that “the law of
E England will not require an act to be done in performance of an
English contract if such act….would be unlawful by the law of
the country in which the act has to be done.” In Zivnostenska
Banka v. Frankman, however, he regarded it as “settled law that,
whatever be the proper law of the contract, an English court will
F not require a party to do an act in performance of a contract
which would be an offence under the law in force at the place
where the act is to be done.”
56. The case of Ralli Brothers was followed in Foster v.
Driscoll 1929 1 Kings Bench 470. Both these judgments were then
G referred to in Regazzoni v. KC Sethia [1958] A.C. 301. In this case,
the House of Lords decided a case in which the respondents agreed to
sell and deliver to the appellant, jute bags. Both parties contemplated
that they should be shipped from India to Genoa for resale in South
Africa. The parties were also aware that the export of jute from India to
South Africa was prohibited by Indian law. Despite the fact that English
H law was the proper law of the contract, the House of Lords held that the
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contract was unenforceable since an English court will not enforce a A
contract which violates the law of a foreign and friendly state. Vicount
Simonds put it thus:
“The question then arises — and it is, as I say, the only question
for your Lordships’ consideration — whether the respondents were
justified in repudiating the contract. They claim to be justified on B
the ground that I have already stated. Their broad proposition is
that whether or not the proper law of the contract is English law,
an English court will not enforce a contract, or award damages
for its breach, if its performance will involve the doing of an act in
a foreign and friendly State which violates the law of that State.
For this they cite the authority of the well-known case of Foster C
v. Driscoll, [1929] 1 K.B. 470 and much of the debate in this
House has been whether that case was rightly decided, and if so,
whether it is distinguishable from the present case. The appellant
contends that it was not rightly decided, and further invokes a
familiar principle which he states in these wide but questionable D
terms, “An English court will not have regard to a foreign law of
a penal, revenue, or political character,” and claims that the Indian
law here in question is of such a character.”
(at pages 317-318)
*** E
“Here, my Lords, was a formidable line of authority when in 1920
Ralli Brothers v. Compañia Naviera Sota y Aznar, [1920] 2 K.B.
287 came before the Court of Appeal. In that case the contract in
suit was governed by English law but it required the performance
in Spain of an act illegal by Spanish law, and it was held that for F
that reason it could not be enforced. I will cite one passage only
from the judgment of Scrutton L.J. “Where,” he said, [1920] 2
K.B. 287, 304: ”a contract requires an act to be done in a foreign
country, it is, in the absence of very special circumstances, an
implied term of the continuing validity of such a provision that the G
act to be done in the foreign country shall not be illegal by the law
of that country. This country should not in my opinion assist or
sanction the breach of the laws of other independent States.” In
the Ralli Brothers case, [1920] 2 K.B. 287, the relevant law was
not a revenue law, and I am content to assume that Scrutton L.J.
might have qualified his statement if he had had such a law in H
618 SUPREME COURT REPORTS [2021] 4 S.C.R.
A mind. But I venture to return to what I said earlier in this opinion.
It does not follow from the fact that today the court will not enforce
a revenue law at the suit of a foreign State that today it will enforce
a contract which requires the doing of an act in a foreign country
which violates the revenue law of that country. The two things
are not complementary or co-extensive. This may be seen if for
B
revenue law penal law is substituted. For an English court will not
enforce a penal law at the suit of a foreign State, yet it would be
surprising if it would enforce a contract which required the
commission of a crime in that State. It is sufficient, however, for
the purposes of the present appeal to say that, whether or not an
C exception must still be made in regard to the breach of a revenue
law in deference to old authority, there is no ground for making an
exception in regard to any other law. I should myself have said —
and this is, I think, the only point upon which I do not agree with
the Court of Appeal — that the present case was precisely covered
by the decision in Ralli Brothers, [1920] 2 K.B. 287. For when
D
the fact is found that the very thing which the parties intended to
do was to export the jute bags from India in order that they might
go via Genoa to the Union of South Africa, it appears to me
irrelevant that upon the face of the documents that wrongful
intention was not disclosed. But, whether this is so or not, it is
E clearly covered by Foster v. Driscoll, [1929] 1 K.B. 470, a decision
the correctness of which is not to be doubted. The distinctive
feature of the case was that Scrutton L.J. thought that the contract
there in question could be carried out legally, and forthat reason,
differing from Lawrence and Sankey L.JJ., held that it was not
invalid. The principle of the decision in Ralli Brothers, [1920] 2
F
K.B. 287 was emphatically reasserted and the apparent innocence
of the documents was disregarded, the guilty intention being proved
ab extra. So, here, it has been conclusively found that the common
intention of the parties was to violate the law of India, and it is of
no consequence that the documents did not disclose their intention.
G I ought not to part from the case without noting that Sankey L.J.
observed that the cases relating to the breach of a revenue law
were not germane to the issue. Nor are they germane to this
appeal. Whether they are still to be regarded as a binding authority
is a question that must await determination.”
H (at pages 321-323)
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Lord Reid, concurring, held: A
“The only recent authority which is directly in point is Foster v.
Driscoll, [1929] 1 K.B. 470. There Scrutton L.J. dissented because
he took a different view of the facts: if he had held that performance
of the contract necessarily involved a breach of American law, I
think that he would have agreed with the majority. He said, [1929] B
1 K.B. 470, 496: “I have no doubt that if seller and buyer agreed
to ship the whisky into the United States contrary to the laws of
that country the contract would not be enforced here: Ralli’s case,
[1920] 2 K.B. 287, not because it was illegal here but as a matter
of public policy based on international comity.” He then cited with
approval, [1929] 1 K.B. 470, 497, Dicey’s Conflict of Laws, 4th C
ed., p. 620: “‘It must, however, be noted that if a contract is an
English contract, it will only be held invalid on account of illegality
if it actually necessitates the performance in a foreign and friendly
country of some act which is illegal by the law of such country.’”
And he also quoted with approval a passage from the judgment of D
Blackburn J. in Waugh v. Morris, (1873) L.R. 8 Q.B. 202, 208:
“We quite agree, that, where a contract is to do a thing which
cannot be performed without a violation of the law it is void,
whether the parties knew the law or not. But we think, that to
avoid a contract which can be legally performed, on the ground
that there was an intention to perform it in an illegal manner, it is E
necessary to show that there was the wicked intention to break
the law; and, if this be so, the knowledge of what the law is becomes
of great importance.” By “a thing which cannot be performed
without a violation of the law,” I think that Blackburn J. meant a
thing which the contract expressly or by clear implication requires F
to be done. This contract does not require the seller to obtain the
goods from India: it is only after investigation of the facts that it
appears that he could not have got them anywhere else. And this
contract does not disclose the buyer’s intention to send the goods
to South Africa. On the face of it this contract could be performed
without a breach of the laws of any country. I shall also quote G
from what Lawrence L.J. said in Foster’s case, [1929] 1 K.B.
470, 510:”On principle, however, I am clearly of opinion that a
partnership formed for the main purpose of deriving profit from
the commission of a criminal offence in a foreign and friendly
country is illegal, even although the parties have not succeeded in H
620 SUPREME COURT REPORTS [2021] 4 S.C.R.
A carrying out their enterprise, and no such criminal offence has in
fact been committed; and none the less so because the parties
may have contemplated that if they could not successfully arrange
to commit the offence themselves they would instigate or aid and
abet some other person to commit it.” These passages cover the
present case, and I agree with them.
B
Finally, it was argued that, even if there be a general rule that our
courts will take notice of foreign laws so that agreements to break
them are unenforceable, that rule must be subject to exceptions
and this Indian law is one of which we ought not to take notice. It
may be that there are exceptions. I can imagine a foreign law
C involving persecution of such a character that we would regard
an agreement to break it as meritorious. But this Indian law is
very far removed from anything of that kind. It was argued that
this prohibition of exports to South Africa was a hostile act against
a Commonwealth country with which we have close relations,
D that such a prohibition is contrary to inter national usage, and that
we cannot recognize it without taking sides in the dispute between
India and South Africa.
My Lords, it is quite impossible for a court in this country to set
itself up as a judge of the rights and wrongs of a controversy
E between two friendly countries, we cannot judge the motives or
the justifications of governments of other countries in these matters
and, if we tried to do so, the consequences might seriously prejudice
international relations. By recognizing this Indian law so that an
agreement which involves a breach of that law within Indian
territory is unenforceable we express no opinion whatever, either
F favourable or adverse, as to the policy which caused its enactment.
In my judgment this appeal should be dismissed.”
(at pages 324-326)
57. It will thus be seen that where the law of India prohibits a
G certain act, the conflict of law rules as set down in Dicey’s authoritative
treatise will take care of this situation in most cases as the arbitrators
would then apply these rules on the ground of international comity
between nations in cases which arise between two Indian nationals in
an award made outside India, which would fall within the definition of
“foreign award” under Section 44 of the 1996 Act.
H
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 621
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58. Even otherwise, a ground may be made out under section 48 A
against enforcement of a foreign award where enforcement of such
award would be contrary to the public policy of India. If, on the facts of
a given case, it is found that two Indian nationals have circumvented a
law which pertains to the fundamental policy of India, such foreign award
may then not be enforced under section 48(2)(b) of the Arbitration Act.
B
On the assumption that Mr. Himani’s example of the Benami
Transactions Act pertains to the fundamental policy of Indian law, if the
foreign award is contrary to such fundamental policy, such award will
then not be enforced in India.
59. When it comes to the ground raised under section 34(2A) of
the Arbitration Act, it is clear that in an international commercial C
arbitration, say, between an Indian national habitually resident outside
India and an Indian national resident in India, even when the arbitration
takes place in India resulting in an award being made in India, the ground
available under section 34(2A) would not be available, as it would not
apply to an international commercial arbitration held in India. In agreeing D
to a neutral forum outside India, parties agree that instead of one bite at
the cherry under section 34 of the Arbitration Act, where an arbitration
between two Indian nationals is conducted in India [with the grounds for
setting aside the award being available under section 34(2A)], what is
instead put in place by the parties is two bites at the cherry, namely, the
recourse to a court or tribunal in a country outside India for setting aside E
the arbitral award passed in that country on grounds available in that
country (which may be wider than the grounds available under section
34 of the Arbitration Act), and then resisting enforcement under the
grounds mentioned in section 48 of the Arbitration Act. The balancing
act between freedom of contract and clear and undeniable harm to the F
public must be resolved in favour of freedom of contract as there is no
clear and undeniable harm caused to the public in permitting two Indian
nationals to avail of a challenge procedure of a foreign county when,
after a foreign award passes muster under that procedure, its enforcement
can be resisted in India on the grounds contained in section 48 of the
Arbitration Act, which includes the foreign award being contrary to the G
public policy of India.
Party Autonomy
60. The decks have now been cleared to give effect to party
autonomy in arbitration. Party autonomy has been held to be the brooding H
622 SUPREME COURT REPORTS [2021] 4 S.C.R.
A and guiding spirit of arbitration. Thus, in Bharat Aluminium Co. v.
Kaiser Aluminium Technical Services Inc., (2016) 4 SCC 126, this
Court held:
“5. Party autonomy being the brooding and guiding spirit in
arbitration, the parties are free to agree on application of three
B different laws governing their entire contract — (1) proper law
of contract, (2) proper law of arbitration agreement, and (3) proper
law of the conduct of arbitration, which is popularly and in legal
parlance known as “curial law”. The interplay and application of
these different laws to an arbitration has been succinctly explained
by this Court in Sumitomo Heavy Industries Ltd. v. ONGC
C Ltd. [Sumitomo Heavy Industries Ltd. v. ONGC Ltd., (1998) 1
SCC 305], which is one of the earliest decisions in that direction
and which has been consistently followed in all the subsequent
decisions including the recent Reliance Industries Ltd. v. Union
of India [Reliance Industries Ltd. v. Union of India, (2014) 7
D SCC 603 : (2014) 3 SCC (Civ) 737] .”
***
“10. In the matter of interpretation, the court has to make different
approaches depending upon the instrument falling for interpretation.
Legislative drafting is made by experts and is subjected to scrutiny
E at different stages before it takes final shape of an Act, Rule or
Regulation. There is another category of drafting by lawmen or
document writers who are professionally qualified and experienced
in the field like drafting deeds, treaties, settlements in court, etc.
And then there is the third category of documents made by laymen
F who have no knowledge of law or expertise in the field. The legal
quality or perfection of the document is comparatively low in the
third category, high in second and higher in first. No doubt, in the
process of interpretation in the first category, the courts do make
an attempt to gather the purpose of the legislation, its context and
text. In the second category also, the text as well as the purpose
G is certainly important, and in the third category of documents like
wills, it is simply intention alone of the executor that is relevant. In
the case before us, being a contract executed between the two
parties, the court cannot adopt an approach for interpreting a
statute. The terms of the contract will have to be understood in
the way the parties wanted and intended them to be. In that context,
H
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 623
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
particularly in agreements of arbitration, where party autonomy is A
the grund norm, how the parties worked out the agreement, is one
of the indicators to decipher the intention, apart from the plain or
grammatical meaning of the expressions and the use of the
expressions at the proper places in the agreement.”
61. Likewise, in Centrotrade Minerals & Metal Inc. v. B
Hindustan Copper Ltd., (2017) 2 SCC 228, this Court held that a two-
tier arbitration, namely, an arbitration at an original forum followed by an
appeal at an appellate forum, would not be interdicted by the Arbitration
Act, given the free party autonomy for parties to enter into an agreement
as to choice of fora and procedure at such fora. Thereafter, this Court,
under the head “party autonomy”, put it thus: C
“Party autonomy
38. Party autonomy is virtually the backbone of arbitrations. This
Court has expressed this view in quite a few decisions. In two
significant passages in Bharat Aluminium Co. v. Kaiser
Aluminium Technical Services Inc. [Bharat Aluminium Co. v. D
Kaiser Aluminium Technical Services Inc., (2016) 4 SCC 126 :
(2016) 2 SCC (Civ) 580, Hon’ble Judges/Coram: Anil R. Dave,
Kurian Joseph and Amitava Roy, JJ.] this Court dealt with party
autonomy from the point of view of the contracting parties and its
importance in commercial contracts. In para 5 of the Report, it E
was observed: (SCC p. 130)
“5. Party autonomy being the brooding and guiding spirit in
arbitration, the parties are free to agree on application of three
different laws governing their entire contract— (1) proper law of
contract, (2) proper law of arbitration agreement, and (3) proper
law of the conduct of arbitration, which is popularly and in legal F
parlance known as “curial law”. The interplay and application of
these different laws to an arbitration has been succinctly explained
by this Court in Sumitomo Heavy Industries Ltd. v. ONGC Ltd.,
[Sumitomo Heavy Industries Ltd. v. ONGC Ltd., (1998) 1 SCC
305] which is one of the earliest decisions in that direction and G
which has been consistently followed in all the subsequent decisions
including the recent Reliance Industries Ltd. v. Union of
India [Reliance Industries Ltd. v. Union of India, (2014) 7 SCC
603 : (2014) 3 SCC (Civ) 737] .”
(emphasis in original)
H
624 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Later in para 10 of the Report, it was held: (SCC pp. 131-32)
“10. In the matter of interpretation, the court has to make different
approaches depending upon the instrument falling for interpretation.
Legislative drafting is made by experts and is subjected to scrutiny
at different stages before it takes final shape of an Act, Rule or
B Regulation. There is another category of drafting by lawmen or
document writers who are professionally qualified and experienced
in the field like drafting deeds, treaties, settlements in court, etc.
And then there is the third category of documents made by laymen
who have no knowledge of law or expertise in the field. The legal
quality or perfection of the document is comparatively low in the
C third category, high in second and higher in first. No doubt, in the
process of interpretation in the first category, the courts do make
an attempt to gather the purpose of the legislation, its context and
text. In the second category also, the text as well as the purpose
is certainly important, and in the third category of documents like
D wills, it is simply intention alone of the executor that is relevant. In
the case before us, being a contract executed between the
two parties, the court cannot adopt an approach for
interpreting a statute. The terms of the contract will have to
be understood in the way the parties wanted and intended
them to be. In that context, particularly in agreements of
E arbitration, where party autonomy is the grund norm, how the
parties worked out the agreement, is one of the indicators to
decipher the intention, apart from the plain or grammatical meaning
of the expressions and the use of the expressions at the proper
places in the agreement.”
F (emphasis in original)
39. In Union of India v. U.P. State Bridge Corpn. Ltd. [Union
of India v. U.P. State Bridge Corpn. Ltd., (2015) 2 SCC 52 :
(2015) 1 SCC (Civ) 732] this Court accepted the view [ O.P.
Malhotra on the Law and Practice of Arbitration and Conciliation
G (3rd Edn. revised by Ms Indu Malhotra, Senior Advocate)] that
the A&C Act has four foundational pillars and then observed in
para 16 of the Report that: (SCC p. 64)
“16. First and paramount principle of the first pillar is ‘fair,
speedy and inexpensive trial by an Arbitral Tribunal’.
H Unnecessary delay or expense would frustrate the very purpose
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 625
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
of arbitration. Interestingly, the second principle which is A
recognised in the Act is the party autonomy in the choice
of procedure. This means that if a particular procedure is
prescribed in the arbitration agreement which the parties have
agreed to, that has to be generally resorted to.”
(emphasis in original) B
40. This is also the view taken in Law and Practice of
International Commercial Arbitration [Chapter 6. Conduct of
the Proceedings in Nigel Blackaby, Constantine Partasides, et
al., Redfern and Hunter on International Arbitration [Sixth
Edn., © Kluwer Law International, Oxford University Press 2015] C
pp. 353-414, Para 6.07] wherein it is said:
“Party autonomy is the guiding principle in determining the
procedure to be followed in an international arbitration. It is a
principle that is endorsed not only in national laws, but also by
international arbitral institutions worldwide, as well as by D
international instruments such as the New York Convention
and the Model Law.”
41. However, the authors in Comparative International
Commercial Arbitration [Chapter 17: Determination of Applicable
Law in Julian D.M. Lew, Loukas A. Mistelis, et al., Comparative E
International Commercial Arbitration (Kluwer Law
International 2003) pp. 411-437, Para 17-8] go a step further in
that, apart from procedure, they say that party autonomy permits
parties to have their choice of substantive law as well. It is said:
“All modern arbitration laws recognise party autonomy, F
that is, parties are free to determine the substantive law or
rules applicable to the merits of the dispute to be resolved
by arbitration. Party autonomy provides contracting parties
with a mechanism of avoiding the application of an unfavourable
or inappropriate law to an international dispute. This choice is
and should be binding on the Arbitration Tribunal. This is also G
confirmed in most arbitration rules.”
(emphasis in original)
42. Be that as it may, the legal position as we understand it is that
the parties to an arbitration agreement have the autonomy to decide
H
626 SUPREME COURT REPORTS [2021] 4 S.C.R.
A not only on the procedural law to be followed but also the substantive
law. The choice of jurisdiction is left to the contracting parties. In
the present case, the parties have agreed on a two-tier arbitration
system through Clause 14 of the agreement and Clause 16 of the
agreement provides for the construction of the contract as a
contract made in accordance with the laws of India. We see nothing
B
wrong in either of the two clauses mutually agreed upon by the
parties.”
In a very important passage, where it was sought to be argued
that a two-tier arbitration would be contrary to the public policy of India,
this Court held:
C
“Public policy and two-tier arbitrations
43. The question that now arises is the interplay between public
policy and party autonomy and therefore whether embracing the
two-tier arbitration system is contrary to public policy.
44. Years ago, it was said per Burroughs, J. in Amicable Society
D
v. Bolland [Amicable Society v. Bolland, (1830) 4 Bligh (NS)
194 : 5 ER 70 : 2 Dow & Cl 1 : 6 ER 630. [Ed.: See also per
Burroughs, J. in Richardson v. Mellish, 1824 Bing 229 at 252 :
130 ER 293 at 303, wherein also he observed: “Public Policy — it
is a very unruly horse, and when once you get astride it you never
E know where it will carry you.”]] (Fauntleroy case):
“Public policy is a restive horse and when you get astride of it,
there is no knowing where it will carry you.”
Perhaps to assist in getting over this uncertainty, Mustill and Boyd
[The Law and Practice of Commercial Arbitration in England,
F London, Butterworths 1982 pp. 245-246] identify four classes of
provision regarded by the courts as contrary to public policy. They
are: (i) Terms which affect the substantive content of the award;
(ii) Terms which purport to exclude or restrict the supervisory
jurisdiction of the Court; (iii) Terms which require the arbitrator
to conduct the reference in an unacceptable manner; and (iv)
G Terms which purport to empower the arbitrator to carry put
procedures or exercise powers which lie exclusively within the
jurisdiction of the courts. Clause 14 of the agreement between
the parties does not fall under any of these situations.”
***
H
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 627
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
“46. For the present we are concerned only with the fundamental A
or public policy of India. Even assuming the broad delineation of
the fundamental policy of India as stated in Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC
(Civ) 204] we do not find anything fundamentally objectionable in
the parties preferring and accepting the two-tier arbitration system.
B
The parties to the contract have not by-passed any mandatory
provision of the A&C Act and were aware, or at least ought to
have been aware that they could have agreed upon the finality of
an award given by the arbitration panel of the Indian Council of
Arbitration in accordance with the Rules of Arbitration of the
Indian Council of Arbitration. Yet they voluntarily and deliberately C
chose to agree upon a second or appellate arbitration in London,
UK in accordance with the Rules of Conciliation and Arbitration
of the International Chamber of Commerce. There is nothing in
the A&C Act that prohibits the contracting parties from agreeing
upon a second instance or appellate arbitration — either explicitly
D
or implicitly. No such prohibition or mandate can be read into the
A&C Act except by an unreasonable and awkward
misconstruction and by straining its language to a vanishing point.
We are not concerned with the reason why the parties (including
HCL) agreed to a second instance arbitration — the fact is that
they did and are bound by the agreement entered into by them. E
HCL cannot wriggle out of a solemn commitment made by it
voluntarily, deliberately and with eyes wide open.”
Nothing stands in the way of party autonomy in designating a seat
of arbitration outside India even when both parties happen to be Indian
nationals, as has been held hereinabove. F
Section 10 of the Commercial Courts Act.
62. Shri Himani relied upon section 10 read with section 21 of the
Commercial Courts Act to argue that in all cases between Indian nationals
which result in awards delivered in a country outside India, section 10(3)
would apply, as a result of which the impugned judgment having been
G
made by a High Court, is made without jurisdiction. In order to appreciate
this submission, sections 10 and 21 of the Commercial Courts Act are
set out hereinbelow:
“10. Jurisdiction in respect of arbitration matters.—Where
the subject-matter of an arbitration is a commercial dispute of a
specified value and— H
628 SUPREME COURT REPORTS [2021] 4 S.C.R.
A (1) If such arbitration is an international commercial arbitration,
all applications or appeals arising out of such arbitration
under the provisions of the Arbitration and Conciliation Act,
1996 (26 of 1996) that have been filed in a High Court,
shall be heard and disposed of by the Commercial Division
where such Commercial Division has been constituted in
B
such High Court.
(2) If such arbitration is other than an international commercial
arbitration, all applications or appeals arising out of such
arbitration under the provisions of the Arbitration and
Conciliation Act, 1996 (26 of 1996) that have been filed on
C the original side of the High Court, shall be heard and
disposed of by the Commercial Division where such
Commercial Division has been constituted in such High
Court.
(3) If such arbitration is other than an international commercial
D arbitration, all applications or appeals arising out of such
arbitration under the provisions of the Arbitration and
Conciliation Act, 1996 (26 of 1996) that would ordinarily lie
before any principal civil court of original jurisdiction in a
district (not being a High Court) shall be filed in, and heard
E and disposed of by the Commercial Court exercising
territorial jurisdiction over such arbitration where such
Commercial Court has been constituted.”
“21. Act to have overriding effect.—Save as otherwise
provided, the provisions of this Act shall have effect,
F notwithstanding anything inconsistent therewith contained in any
other law for the time being in force or in any instrument having
effect by virtue of any law for the time being in force other than
this Act.”
63. It must be remembered that when a foreign award is sought
G to be enforced under Part II of the Arbitration Act, the explanation to
section 47 makes it clear that it is the High Court alone which is the
court on whose doors the applicant must knock. This is sought to be
answered by Shri Himani by stating that since the explanation to section
47 is in direct collision with section 10(3) of the Commercial Courts Act,
vide section 21 of the Commercial Courts Act, section 10(3) would prevail
H over the explanation to section 47.
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 629
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
64. Before entering into a discussion as to whether there is any A
direct collision between the aforesaid provisions, one is first to appreciate
the purport of the expression “international commercial arbitration”
contained in section 10(1) of the Commercial Courts Act. We have
already seen how section 2(1)(f) of the Arbitration Act which defines
the expression “international commercial arbitration” is only for a limited
B
purpose, namely, for the purpose of Part I of the Arbitration Act. Under
section 2(2) of the Commercial Courts Act, words and expressions used
and not defined in the Commercial Courts Act but defined in the CPC
and the Indian Evidence Act, 1872 shall have the same meanings
respectively assigned to them in that Code and the Act. Conspicuous by
its absence are definitions contained in the Arbitration Act. C
65. We have therefore to see what is the purport of the expression
“international commercial arbitration” when used in section 10(1) of the
Commercial Courts Act.
66. We have already seen how “international commercial
arbitration”, when used in the proviso to section 2(2) of the Arbitration D
Act, does not refer to the definition contained in section 2(1)(f) but would
have reference to arbitrations which take place outside India, awards
made in such arbitrations being enforceable under Part II of the
Arbitration Act. It will be noted that section 10(1) applies to international
commercial arbitrations, and applications or appeals arising therefrom, E
under both Parts I and II of the Arbitration Act. When applications or
appeals arise out of such arbitrations under Part I, where the place of
arbitration is in India, undoubtedly, the definition of “international
commercial arbitration” in section 2(1)(f) will govern. However, when
applied to Part II, “international commercial arbitration” has reference
to a place of arbitration which is international in the sense of the arbitration F
taking place outside India. Thus construed, there is no clash at all between
section 10 of the Commercial Courts Act and the explanation to section
47 of the Arbitration Act, as an arbitration resulting in a foreign award,
as defined under section 44 of the Arbitration Act, will be enforceable
only in a High Court under section 10(1) of the Commercial Courts Act, G
and not in a district court under section 10(2) or section 10(3).
67. Even otherwise, this Court has made it clear in BGS SGS
SOMA JV v. NHPC, (2020) 4 SCC 234 (at paragraphs 12 and 13) that
the substantive law as to appeals and applications is laid down in the
Arbitration Act whereas the procedure governing the same is laid down
H
630 SUPREME COURT REPORTS [2021] 4 S.C.R.
A in the Commercial Courts Act. In this context, it has also been held that
the Arbitration Act is a special Act vis-à-vis the Commercial Courts Act
which is general, and which applies to the procedure governing appeals
and applications in cases other than arbitrations as well. In Kandla
Export Corpn. v. OCI Corpn., (2018) 14 SCC 715, this Court held:
B “20. Given the judgment of this Court in Fuerst Day Lawson
[Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2011) 8 SCC
333 : (2011) 4 SCC (Civ) 178] , which Parliament is presumed to
know when it enacted the Arbitration Amendment Act, 2015, and
given the fact that no change was made in Section 50 of the
Arbitration Act when the Commercial Courts Act was brought
C into force, it is clear that Section 50 is a provision contained in a
self-contained code on matters pertaining to arbitration, and which
is exhaustive in nature. It carries the negative import mentioned
in para 89 of Fuerst Day Lawson [Fuerst Day Lawson
Ltd. v. Jindal Exports Ltd., (2011) 8 SCC 333 : (2011) 4 SCC
D (Civ) 178] that appeals which are not mentioned therein, are not
permissible. This being the case, it is clear that Section 13(1) of
the Commercial Courts Act, being a general provision vis-à-vis
arbitration relating to appeals arising out of commercial disputes,
would obviously not apply to cases covered by Section 50 of the
Arbitration Act.”
E ***
“27. The matter can be looked at from a slightly different angle.
Given the objects of both the statutes, it is clear that arbitration
itself is meant to be a speedy resolution of disputes between parties.
Equally, enforcement of foreign awards should take place as soon
F as possible if India is to remain as an equal partner, commercially
speaking, in the international community. In point of fact, the raison
d’être for the enactment of the Commercial Courts Act is that
commercial disputes involving high amounts of money should be
speedily decided. Given the objects of both the enactments, if we
were to provide an additional appeal, when Section 50 does away
G
with an appeal so as to speedily enforce foreign awards, we would
be turning the Arbitration Act and the Commercial Courts Act on
their heads. Admittedly, if the amount contained in a foreign award
to be enforced in India were less than Rs 1 crore, and a Single
Judge of a High Court were to enforce such award, no appeal
H would lie, in keeping with the object of speedy enforcement of
PASL WIND SOLUTIONS PVT. LTD. v. GE POWER 631
CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]
foreign awards. However, if, in the same fact circumstance, a A
foreign award were to be for Rs 1 crore or more, if the appellants
are correct, enforcement of such award would be further delayed
by providing an appeal under Section 13(1) of the Commercial
Courts Act. Any such interpretation would lead to absurdity, and
would be directly contrary to the object sought to be achieved by
B
the Commercial Courts Act viz. speedy resolution of disputes of a
commercial nature involving a sum of Rs 1 crore and over. For
this reason also, we feel that Section 13(1) of the Commercial
Courts Act must be construed in accordance with the object sought
to be achieved by the Act. Any construction of Section 13 of the
Commercial Courts Act, which would lead to further delay, instead C
of an expeditious enforcement of a foreign award must, therefore,
be eschewed. Even on applying the doctrine of harmonious
construction of both statutes, it is clear that they are best
harmonised by giving effect to the special statute i.e. the Arbitration
Act, vis-à-vis the more general statute, namely, the Commercial
D
Courts Act, being left to operate in spheres other than arbitration.”
68. It is interesting to note that the Arbitration and Conciliation
(Amendment) Act, 2015 and the Commercial Courts Act, 2015, both
came into effect from 23.10.2015. In R.S. Raghunath v. State of
Karnataka, (1992) 1 SCC 335, this Court held that even a later general
law which contains a non-obstante clause does not override a special E
law as both must be held to operate as follows:
“13. As already noted, there should be a clear inconsistency
between the two enactments before giving an overriding effect to
the non-obstante clause but when the scope of the provisions of
an earlier enactment is clear the same cannot be cut down by F
resort to non-obstante clause. In the instant case we have noticed
that even the General Rules of which Rule 3(2) forms a part
provide for promotion by selection. As a matter of fact Rules
1(3)(a) and 3(1) and 4 also provide for the enforceability of the
Special Rules. The very Rule 3 of the General Rules which provides
for recruitment also provides for promotion by selection and further G
lays down that the methods of recruitment shall be as specified in
the Special Rules, if any. In this background if we examine the
General Rules it becomes clear that the object of these Rules
only is to provide broadly for recruitment to services of all the
departments and they are framed generally to cover situations H
632 SUPREME COURT REPORTS [2021] 4 S.C.R.
A that are not covered by the Special Rules of any particular
department. In such a situation both the Rules including Rules
1(3)(a), 3(1) and 4 of General Rules should be read together. If
so read it becomes plain that there is no inconsistency and that
amendment by inserting Rule 3(2) is only an amendment to the
General Rules and it cannot be interpreted as to supersede the
B Special Rules. The amendment also must be read as being subject
to Rules 1(3)(a), 3(1) and 4(2) of the General Rules themselves.
The amendment cannot be read as abrogating all other Special
Rules in respect of all departments. In a given case where there
are no Special Rules then naturally the General Rules would be
C applicable. Just because there is a non-obstante clause, in Rule
3(2) it cannot be interpreted that the said amendment to the General
Rules though later in point of time would abrogate the special rule
the scope of which is very clear and which co-exists particularly
when no patent conflict or inconsistency can be spelt out. As
already noted Rules 1(3)(a), 3(1) and 4 of the General Rules
D themselves provide for promotion by selection and for
enforceability of the Special Rules in that regard. Therefore there
is no patent conflict or inconsistency at all between the General
and the Special Rules.”
69. Consequently, this argument of the appellant also fails.
E Whether an application under section 9 of the Arbitration
Act would lie
70. Mr. Dewan, by way of cross objection, has challenged the
finding of the Gujarat High Court by the impugned judgment that the
section 9 application that was made by the respondent was not
maintainable by reason of the expression “international commercial
F
arbitration” appearing in the proviso to section 2(2) having the meaning
to be ascribed by section 2(1)(f) of the Arbitration Act. We have already
held in paragraph 14 above that this view of the law is incorrect.
Consequently, this part of the judgment is set aside, it being held that the
application made by the respondent under section 9 would be maintainable.
G 71. In light of the findings arrived at by us, we uphold the impugned
judgment of the Gujarat High Court, except for the finding on the section
9 application of the respondent being held to be non-maintainable. The
appeal is disposed of accordingly.
H Nidhi Jain Appeal disposed of.
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