Holding

The Supreme Court held that the counsel’s unauthorised applications did not constitute a step in the proceedings, the lenders satisfied the appearance requirement, the arbitration agreements remain valid, and the suit must be stayed under Section 3 of the Foreign Awards Act.

Summary

The plaintiff (borrower) sued the suppliers, lenders and guarantor over a power‑plant project, invoking credit agreements that contained arbitration clauses. The lenders, particularly Svenska Handelsbanken (defendant No. 4), instructed their counsel not to appear or take any step in the main suit, limiting a power of attorney to a miscellaneous injunction case. The counsel nonetheless filed applications seeking time to file written statements and a stay of the suit under Section 3 of the Foreign Awards Act, allegedly without authority. The Supreme Court examined whether such filings constituted a "step" in the proceedings, whether condition (iv) of Section 3 was satisfied, and whether the arbitration clauses remained valid despite the suit. It held that the counsel’s filings were ultra‑vires and did not amount to a step, that the lenders had satisfied the appearance requirement, and that the arbitration agreements were enforceable, ordering a stay of the suit under Section 3. The appeals of the lenders were allowed and the lower courts' orders dismissing the stay were set aside.

Issues considered

Whether filing applications by counsel without proper power of attorney amounts to taking a step in the legal proceedings.
Whether condition (iv) of Section 3 of the Foreign Awards (Recognition and Enforcement) Act – appearance before filing a written statement – is satisfied for the lenders.
Whether the arbitration clauses in the credit agreements become invalid or inoperative by the filing of the suit.
Whether a new point concerning the applicability of Section 34 of the Arbitration Act versus Section 3 of the Foreign Awards Act can be raised for the first time.
Whether the suit should be stayed under Section 3 of the Foreign Awards Act.

Legislation cited

Arbitration Act, 1940s. 34
Constitution of Indias. 136
Foreign Awards (Recognition and Enforcement) Act, 1961s. 3, s. 9(b)

Subjects

Foreign Awards ActSection 3 stay of suitArbitration clause validityPower of attorney ultra viresLegal steps in proceedingsStay of civil suitInternational arbitrationAppeal to Supreme Court

Judgment

SVENSKA HANDELSBM'KEN AND OTHERS ETC. A
v.
INDIAN CHARGE CHROME LTD. AND OTHERS

JANUARY 24, 1994

[J.S. VERMA, YOGESHWAR DAYAL AND B
B.P. JEEVAN REDDY, JJ.]

Foreign Awards (Recognition and Enforcement) Act, 1961-Sec. 3-Ap-
plication of-Effect of counsel filing application and seeking time contrary to
express instructions in the suit without power of attorney-Whether amounts C
to taking steps in the legal proceedings.

Parties agreeing to an Arbitration clause--Effect of filing a
suit-Whether filing a suit would make the arbitration clause invalid or
inoperative.
D
Constitution of India, 1950-Art. 136-New Plea-Question raised for
the first time not to be allowed.
-~-

Global tenders were called for setting up a coal fired power plant. It
indicated preference for credii by suppliers. Tenders. were submitted by
the suppliers. A'i a result of the efforts made by the suppliers, consortium
E
of banks was formed for financing the project. The lenders entered into
agreement with the borrower. The credit agreements inter alia purported
to provide payments by the lenders to the suppliers on various documents,
as provided ii! the credit agreements, being presented to the lenders and
also against a potice of drawdown by the borrower. F
A suit was filed by the plaintiff (borrower) seeking various reliefs
against the defendents 1 to 3 (suppliers), defendants 4 to 11 who are
lenders (appellants) and defendant No. 12 (guarantor). An ad interim
injunction was granted by the Civil Court injuncting the defendant No. 12 G
from making payments to defendant No. 4 Through his power of attorney
defendant No. 4 entered appearance in the Mis. Case No. 143 (where in
interim injunction was granted) without reference to the main suit and
also wrote a letter to the plaintiH's counsel objecting to the juri'idiction of
the court. An application for vac .ting the interim injunction was also filed.
Separate applications were also filed on behalf of defendants 4 to 11 H
261
262 SUPREME COURT REPORTS [1994] 1 S.C.R.

A without any power of. attorney seeking time for filing written statements
since they are foreign banks residing outside the country. Another applica-
tion was filed by defendant No. 4 purportedly under Sec. 3 of Foreign ·
Awards Act for stay of the suit. An application through a separate power
of attorney was tiled by defendants 5 to 11 in support of the application
under section 3 of the Foreign Awards A!!t. By way of reply the plaintiff
B pleaded that these applications under Sec. 3 of the Foreign Awards Act are
not maintainable as defendent No. 4 has taken steps in the proceedings to
contest the same on merits. An affidavit was filed on behalf of defendant
no. 4 wherein it was denied that steps were taken in the proceedings which
would disentitle it from applying for stay under section 3 of the Foreign y-
C Awards Act. Subsequently a similar application was also filed by the
defendants 1 to 3. But these applications for stay were dismissed by the
Civil Court. All the three Civil Revision Petitions which were filed before
the High Court was dismissed. Hence these appeals by the defendants.

Allowing the appeals, this Court
D
HELD: 1.1. The correspondence reveals that the counsel was given
express instruction not to put in appearance or take any step in the ~-
pnceedings relating to the suit. The power of attorney was confined only
to the proceedings in the Miscellaneous application. Hence filing of ap-
E plication by the counsel seeking time for filing written statement is ultra
vires the authority and will not have any effect on the defendant: [280-F]

Sourendranath Mitra v. Tarubala Desai A.I.R. (1930) P.C. 158: 571 A
133; 34 C.W.N. 453 and Jamilabai Abdul Khader v. Shankarlal Gulabchand,
[1975] 2 S.C.C. 609, relied on.
F
1.2. Counsel was acting contrary to the express instructions of the
client. Hence client was not bound by the action taken by the counsel and
the same does not amount to taking steps in the legal proceedings. (281-F]

G Renusagar Power Co. Ltd. v. General Electrical Co., [1984] 4 S.C.C.:
A.I.R. (1985) S.C. 1156, followed.

1.3. It' the requirements of Section 3 of the Foreign Awards Act are
satisfied a party against whom suit proceedings have been initiated, can
have it stayed, so as to get the disputes resolved through Foreign arbitra-
H tion proceedings as per their respective arguments.
S.HANDEL5BANKEN v. INDIANCHARGECHROMELTD.[DAYAL,J.) 263

1.4. Arbitration is contemplated as per Section 3 of the Foreign A 1

Awards Act. Merely because one has entered into contracts with different
parties, cannot prejudice or defeat the rights of a different party under a
different contract, particularly when right to foreign arbitration has been
provided by parliament as an indefeasible right in which the court does
not have any kind of discretion. By tiling a plr.int one cannot make the
arbitration clause invalid or inoperative. (283-H, 284-B]
B

1.5. When parties agree to have their dispute settled by. arbitration
it docs not mean that both have bound themselves not to go to court to
have the disputes settled. Even after entering into .an arbitration Clause
any party may institute legal proceedings. In this situation it is for the c
other party to seek stay of the suit by showing the arbitration clause and
satisfying the terms of the provisions of law empowering the court to stay
the suit. (285-H]

1.6. A disputed question of fact cannot be allowed to be raised for
the first time in proceedings under Article 136 of the Constitution of India. D

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 266 of
1994 etc. etc.

From the Judgment and Order dated 17.6.1993 of the Orissa High
Court in C.R. No. 282 of 1992 etc. etc. E
DeepanlCar Gupta, Solicitor General, Jaydeep Gupta, AK. Sil, G.
Joshi and G. Kandpal for the IDBI, K. Parasaran, V.A. Bobde, Shanti
Bhushan, R.P. Bhat, P. Chidambaram, R.F. Nariman, K.J. John, Shambhu
Prasad Singh, R. Sasiprabhu and Ashok Mathur for the Appellants. F
K.K. Venugopal, Harish N. Salve, Ms. Anuradha Dutt and Ms. Vijay
Lakshmi Menon for the Respondents.

The Judgment of the Court was delivered by
G
YOGESHWAR DAYAL, J. 1. Special leave granted in all these three
matters. Heard. As the matters have been heard at length, the appeals are
being disposed of.

2. All the three appeals arising out of the above said special leave
petitions are directed against the 11rder passed by the Single Judge of the H
264 SUPREME COURT REPORTS [1994] 1 S.C.R.

A High Court of Orissa at Cuttack dated 17th June, 1993 whereby the Single
Judge of the High Court dismissed three Civil Revision Petition Nos. 282,
283 and -284 of 1992 filed by defendant No. 4, defendants 5 to 11 and
defendants 1 to 3 respectively in Title Suit No. 208 of 1991. All the three
civil revision petitions arose out of the common order passed by the
Subordinate Judge, Athagarh in proceedings arising out of three applica-
B tions filed by the aforesaid set of defendants for stay of the suit filed by
the plaintiff invoking Section 3 of the Foreign Awards (Recognition and
Enforcement) Act, 1961 (hereinafter referred to as 'the Foreign Awards
Act').

C 3. Before we deal with the applications, it would be useful to state a
few facts relevant for purposes of the decisions of these appeals.

4. The suit out of which the present appeals arise was filed by the
plaintiff (hereinafter referred to as the 'borrower') before the Subordinate
Judge, Cuttack for various reliefs against defendants 1 to 3 (hereinafter !
D referrep to as the 'suppliers'); defendants 4 to 11 (hereinafter referred to
as the 'lenders'); and defendant No. 12, Industrial Development Bank of
India, (hereinafter referred to as the 'guarantor'). Defendant No. 13 in the
sujt is M/s. Indian Metals & Ferro Alloys Ltd., (in short 'IMFA')

E 5. IMFA issued a global tender for setting up a captive power plant,
viz., a coal-~ed power plant in Choudwar, Orissa., The tender indicated
that credit by the suppliers will be preferred. The suppliers submitted their
tenders in this regard. Since the tender indicated that suppliers' credit. for
the entire project would be preferred, the suppliers approached defendant
No. 4 (one of the lenders) to finance the project and enquiries were made
F to find out the possibilities for financial assistance by the Swedish Govern-
ment in the form of interest at subsidised rates. As a result of negotiations
the three suppliers entered into three contracts with the plaintiff.

6. Defendant No. 4 (one of the lenders) formed a consortium of
banks with defendants 5 to 11 and an American Bank for financing the
G project. The American Bank subsequently assigned its interest in favour of
one of the defendar.t Banks (lenders). The lenders entered into two credit
agreements dated 30th October, 1984 with the borrower. The credit agree-
ments were also entered into by defendant No. 4 for itself and on behalf
of defendants 5to11. A third credit agreement dated 15th November, 1984
H was also entered into between the borrower and defendant No. 4 (lender)
S.HANDELSBANKEN v. INDIANCHARGECHROMELTD.[DAYAL,J.) 265

in its individual capacity. It is not necessary, for the purposes of present· A
proceedings, to mention the quantum of credit agreements except to state
that two additional credit agreements were also entered into between the
borrower and the lenders supplemental to the first and second credit
agreements providing for additional loans. All the credit agreements inter
alia purported to provide payments by the lenders to the suppli~rs on B
various documents, as provided in the credit agreements, being presented
to the lenders and also against a notice of drawdown by the borrower. In
relation to the third credit agreement the disbursements were to be made
directly to the lenders in respect of the financial cost payable by the
borrower upon notice of drawdown by the borrower.
c
7. The loans were required to be re-paid by twenty (subsequently
amended to eighteen) equal semi-annual (six monthly) consecutive instal-
ments. The repayments were required to be made by the borrower without
demand or notice. It was specifically provided in the credit agreements
that:-
D
"Any amounts payable by the Borrower shall be paid without
set-off or counter claim. The liability of the Borrower to effect any
payment under this agreement is thus unconditional and shall not
in any way be dependent upon the-performance of the Contracts
i.e. the agreements between the Borrower and the Suppliers-Ex- E
porters or be affected by any other claim which the Borrower may
have against the Exporters or against any other party (natural or
legal) collaborating with the Exporters."

The credit agreements also provided: - F
"All disputes arising form the provisions of this Agreement or its
performance shall be finally settled by arbitration under the Rules
of Conciliation and Arbitration of the International Chamber of
Commerce by three arbitrators appointed in accordance with these G
rules. Arbitration shall take place in Stockholm and be conducted
in the English language. The award of the arbitral tribunal is final
and obligatory for the parties without any right for-a further appeal
or contestation of its fulfilment. The Borrower hereby expressly
submits to the jurisdiction of the above mentioned arbitration
tribunal." H
266 SUPREME COURT REPORTS [1994] 1 S.C.R.

A 8. The credit agreements ·also provided that the borrower shall
furnish guarantees in favour of the lenders as security for the loans covering
100% of each of the loans plus interest, costs and fees payable under the
credit agreements. As quoted above, the agreements also contained an
arbitration clause whi<:h contemplates disputes arising from the agreements
to be finally settled by arbitration under the rules of Conciliation and
B
Arbitration of the International Chamber of Commerce by three arbitrators
appointed in accordance with these rules. The arbitration is provided to
take place at Stockholm. ·

9. On 24th June, 1989 the plaintiff (borrower) took over the plant
c and on 25th June, 1989 issue a taking over certificate. On 28th July, 1989
the plaintiff authorised defendant No. 4 to disburse the balance 5% of the
payment to defendant No. 3 as well.

10. It was on or about April 28, 1991 that the present suit was filed
D by the plaintiff for: (a) a declaration that the taking over certificate dated
25th June, 1989 is void/voidable instrument and the same may be delivered
and cancelled; (b) it be further declared that the plaintiff is entitled to
dimunition/extinction of price towards the power plant as mentioned in
Annexure 'A' to the plaint, in the alternative, if the court fmds, that any
amount is payable to defendants 1 to 11 jointly or severally, the same be
E directed to be paid as per reschedule of payment to be calculated on the
basis of a cash flow basis on actual generation as determined on equiry;
(c) a decree of declaration that the guarantees obtained from defendants
12 and 13 by defendants 1 to 11 are void/voidable instruments and ought
~o be delivered and cancelled; ( d) a decree of perpetual injunction restrain-
F ing defendants 12 and 13 from making payments dated 30th April, 1991
and payments falling due on subsequent dates under any guarantee to
defendant No. 4 and/or defendant Nos. 4 to 11; and (e) a decree of
perpetual injunction restraining defendants 4 to 11 from recalling the loan
and/or taking any steps from recovering the said loan either in full or in
part, etc. etc.
G
11. On receipt of summons in the suit and notice on the application
for interim injunction filed by the plaintiff (borrower); defendant Nos. 1 to
3 (suppliers) did not enter appearance. Defendant No. 4 (lender) entered
appearance by power of attorney dated 28th June, 1991 specifically in
H Miscellaneous Case No. 143 of 1991 i.e. in relation to the application for
S.HANDELSBANKEN v. INDIAN CHARGE CHROME LTD. [DAYAL,J.) 267

interim injunction without any reference to the main suit. By this power of A
attorney defendant No. 4 appointed S/Shri A. Misra, H.P. Rath and P.N.
Misra, Advocates on their behalf in Miscellaneous Case No. 143 of 1991.
Before filing of the power of attorney, defendant No. 4 also wrote to the
plaintiffs counsel objecting to the jurisdiction of the court itself by letter
dated 31st May, 1991 and also sent a copy of this letter to the Court
opposing the order of ad interim injunction dated 25th April, 1991 whereby B ·
the Subordinate Judge, Cuttack had injuncted defendant No. 12 from
making payments to defendant No. 4. The letter dated 31st May, 1991 reads
thus:

"SVENSKA HANDELSBANKEN c
Stockholm, Sweden

May 31, 1991

BY COURIER
D
Mr. Rajen Mahapatra
Advocate,
7-A/3, Girdhar
Apartments,
Feroz Shah Road,
New Delhi-110 001. E
India.

Dear Sir,

Re: Order of injunction dated 25.4.1991 by the learned Sub-or-
dinate Judge, 1st Court, Cuttack, Orissa in Misc. Case No. F
143 of 1991 arising out of T.S. No. 208 of 1991.

We have received two letters from you, both dated 27th April,
1991, in respect of the above matter.
G
The first was a short covering letter and the second was enclosed
with it. The second quotes the terms of an injunction apparently
granted in the above matter. Enclosed with it was a copy of what
appears to be the notes of the Honourable Judge.

We have never received anything further, either from you or from H
268 SUPREME COURT REPORTS (1994) 1 S.C.R.

A the Court. This is puzzling.

What is even more puzzling is how your clients could have made
such an application, and how it could have been granted, when the
Honourable Court quite clearly has no jurisdiction over us as a
Swedish corporation with no presence in India, or over any dispute
B between us and your client.

Your clients and we signed three main credit agreements under
which your clients' borrowings have taken place. Each of those
agreements contained the following clauses:
c (A) "All amounts payable by the Borrower under the Agreement
shall be paid without set-off or counterclaim. The liability of
the Borrower to -effect any payment under this Agreement is
thus unconditional and shall not in any way be dependant
µpon performance of the Contracts or be affected by any
D other claim which the Borrower may have against the Ex-
porters or against any other party (natural or legal) col-
laborating with the Exporters."

(B) "This Agreement shall be deemed to be made under and shall
be construed in accordance with and governed in all respects
E by Swedish law."

(C) "All disputes arising from the provisions of this Agreement or
its performance shall be finally settled by arbitration under
the Rules of Concilliation and Arbitration of the International
F Chamber of Commerce by three arbitrators appointed in
accordance with these rules. Arbitration shall take place in
Stockholm and be conducted in the English language. The
award of the arbitral tribunal is final and obligatory for the
parties without any right for a further appeal or contestation
of its fulfilment. The Borrower hereby expressly submits to
G the jurisdiction of the above mentioned arbitration tribunal."

In the light of the above we find it incomprehensible how your
client can seek to drag us into whatever dispute which he may have
with the builders of the power plant. Nor do we understand how
H you can wrongly seek the circumvent the clearly provided sole
S.HANDELSBANKEN v. INDIANCHARGECHROMELTD.(DAY.Ai,J.) 269

forum, namely arbitration before the International Chamber of A
Commerce, with the hearings to be in Stockholm.

We are sending a copy of this letter to the Honourable Court in
Cuttack.

Yours faithfully, B
Svenska Handelsbanken

sd/- sd/-
Lena Bertllsen Gudrun Lundin Hollinder"
c
12. The substance of the letter is that the contracts contained att
arbitration agreement which provided that all disputes arising from the
provisions of Agreement or its performance shall be finally settled by
arbitration under the Rules of Concilliation and Arbitration of the Inter-
national Chamber of Commerce by three arbitrators appointed in accord- D
ance with these rules., The arbitration agreement was agreed to be
governed by Swedish Law.

13. It appears that an application dated 28th June, 1991 was filed by
defendant No. 4 for vacating the interim injunction granted in Misc. Case
No. 143 of 1991 and it was this application with which the aforesaid power E
of attorney dated 28th June, 1991, specifically mentioning Miscellaneous
Case No. 143 of 1991, was filed in court. Written arguments '!Vere also filed
on 31st July, 1991 opposing the continuation of the interim injunction.

14. It also appears that on the same date i.e. 31st July, 1991 an
application was filed purporting to be on behalf of defendant Nos. 4 to 11 F
(lenders), without any power of attorney from defendants 5 to 11, stating
inter alia "that these defendants are foreign banks and are residing outside
the country, therefore six weeks time may kindly be granted enabling these
defendants to file their written statement." It is not clear from the applica-
tion which Advocate had signed it.
G
15. It appears that another application dated 24th August, 1991,
purporting to be on behalf of defendants 4 to 11, without any power of
attornef in favour of the counsel in the suit, was filed again asking for time
of eight weeks being granted to defendants 4 to 11 to file their written
statement. H
270 SUPREME COUE.T REPORTS [1994) 1 S.C.R.

A 16. On or about 1st November, 1991 the defendant No. 4 filed an -
application purporting to be under Section 3 of the Foreign Awards Act
for stay of the suit. Another application under Section 3 of the Foreign
Awards Act was also filed on behalf of defendants 5 to 11 supported by a
separate power of attorney in favour of the counsel in the suit in support
of the applications under Section 3 of the Foreign Awards Act.
B
17. In reply to the applications filed on behalf of defendant No. 4
and defendii.nt Nos. 5 to 11 it was inter aliil pleaded on behalf of the
plaintiff that the applications under Section 3 of the Foreign Awards Act
were not maintainable and that defendant No. 4 had taken steps in the
C proceedings and having participated in the proceedings with a view to
contest the same on merits, it is not entitled to file the present application.
Reference was made to the applications dated 28th June, 1991 and 24th
August, 1991. Reference was also made to the applicatio~ ·dated 24th
August, 1991 on behalf of defendants 5 to 11 as well apart from taking
D other pleas to oppose the applications for stay.

18. During the pendency of the applications under Section 3 of the
Foreign Awards Act, in reply to the objections filed by the plaintiff to the
application, an affidavit was filed on behalf of defendant No. 4 of Ms.
Barbro Margareta Lundberg which denied having taken any steps in the
E proceedings so as to disentitle defendant No. 4 from making the applica-
tion under Section 3 of the Foreign Awards Act. It was deposed t~us:

(a) It is denied that D-4 has taken any step in the proceedings so
as to disentitle it from moving this Application under Section 3 of
the Foreign Awards (Recognition and Enforcement) Act, 1961
F ("the 1961 Act") for the following reasons:

(i) D-4 engaged the servi~es of Shri D.A. Misra, ("Mr ..Misra")
Advocate of Orissa High Court, in or about 19 June, 1991.
Extensive discussions were held with Mr. Misra at the offices
of Mis Clifford Chance in London (Solicitors of D-4) when:
G it was made clear to Mr. Misra that under no circumstances
should he take any steps whatever which might result in D-4
being deemed to have submitted to the jurisdiction of the /

Indian Courts or to have entered into the merits of the dispute
in Suit No. 208of1991 because D-4 wanted to reserve to itself
H the option of compelling Plaintiff to arbitrate the dispute, as
S. HANDELlBANKEN v. INDIAN CHARGE CHROME LTD. (DAYAL, J.) 271

agreed. D-4 in the presence and with the help-of Mr. Misra A
prepared an Affidavit by Ms. Helene Melin, an officer of D-4
contesting the jurisdiction of the Indian Courts and relying
upon the arbitration provisions contained in the Credit
Agreements. On behalf of D-4, Mis Clifford Chance, by their
letter of instructions dated 19 June, 1991 expressly instructed B
Mr. Misra to take no steps in the action nor to do anything
else which might be construed as a submission to the juris-
diction of the Indian courts in respect of this matter. This
letter was personally handed over to Mr Misra during the
course of the meetings held in London. In the presence of
two officers of D-4 and their said English Solicitors Mr. Misra C
, read the letter and accepted these instructions. He assured
his clients D-4 that he would act in accordance with these
very clear and explicit instructions. A copy of the letter dated
19th June, 1991 is annexed as Annexure 'A'.

(ii) The Vakalatnama issued by D-4 to Mr. Misra in the injunction
D
proceedings (Misc. Case No. 143 of 1991) is restricted com-
pared to the normal form. This was done intentionally and
WllS discussed and agreed with Mr. Misra at the meetings in
London in June 1991. The usual right of substitution was
deleted because D- 4 wanted to control who was to represent E
it in the injunction proceedings. Mr. Misra indicated what
names he wanted inserted in the power of attorney, and wrotf.
them down. D-4 asked questions about these persons and Mr.
Misra gave informations about them which satisfied D-4 .
...........D-4 intended to authorise the Mr. Misra that it met in
F
London to defend the injunction., not any other person who
may be called Misra. Subsequently D-4 has found that "Misra"
is a common name in Cuttack. D-4 submits that it is not bound
by actions taken in its name by Mr. Ashok Misra, or any other
person who has not been authorized by it in the Vakalatnama.
G
(iii) Again, by letters dated 17th July and 1 August, 1991, Mis
Clifford Chance instructed Mr. Misra not to take any steps
whatever in either the Misc. Case Application for an injunc-
tion brought by the Plaintiff or in the Main Suit, without
instructions. They repeated their previous express instruc- H
272 SUPREMECOURTREPO~ (1994] 1 S.C.R.

A tions that under no circumstances should steps be ~aken in
the action. Copies of the said letters dated 17th July and 1
August, 1991 is annxed as Annexure 'B'.

(iv) It appears that on or about 3i July, 1991 a purported "applica-
tion" was filed before ·this Hon'ble Court seeking time to file 1

B a written statement on behalf of D-4. It is submitted that this
purported "application was filed contrary to the express prior
instructions of D-4 and in glaring breach of duty. He further
purported to apply on behalf of Respondents 5 - 11. As is
plain from the Annexures and in particular the V akalatnama.
c Mr. Misra was only instructed by and on behalf of D-4, and
no one else.

(v) It further appears that a second "application" was filed on 24
August, 1991, seeking additional time to file a Written State-
ment. Again, neither D-4 nor their English Solicitors were
D informed in advance as to the filing of this application, and
the filing of the document took place contrary to the express
instructions of both. Indeed on or about 13 August, 1991 a
representative of M/s Clifford Chance travelled from Delhi
to Cuttack with Mr. Misra to attend the court hearing on 14
E August, and also held meetings with Mr. Misra in Delhi and
Cuttack on 13, 14 and 15 August. During those meetings it
was repeatedly stressed to Mr. Misra how important it was
for D-4 to retain its ability to insist on arbitration as agreed
by the parties in writing, and accordingly that no step in the
action be taken on behalf ofD-4. Mr. Misra made no mention
F
of the impugned application.

(vi) D-4 oruy became aware of the filing of the "application" dated
31 July, 1991 at the en.d of August, 1991, and immediately by
their Solicitor's letter dated 2 September, 1991 called upon
G Mr. Misra to explain.

It is noteworthy, and very surprising that no mention was
made of this "application" during the series of meetings held
in India in mid-August referred to above, or in correspon-
H dence or later telephone conversation.
S.HANDELSBANKEN \'. INDIANCHARGECHROMELTD.[DAYAL,J.] 273

(vii) By his letter dated 8 September 1991, Mr. Misra informed A
D-4's English Solicitors that the filing of an application for
adjournment for the purposes of filing a Written Statement
does not amount to a step in the action. A copy of that letter
is annexed as Annexure 'C'. No mention was made in this
letter of the second "application" dated 24 August, 1991.
B
(viii) The first time D-4 or its English Solicitors became aware of
the second 'application" of 24 August, 1991 was when it was
mentioned in Plaintiffs Objection filed herein. It came as a
complete surprise.
c
(ix) As a result of his Actions D-4 discharged Mr. Misra as their
Advocate by letter dated 16 October 1991. No reply was ever
received to this letter. However, Mr. Misra sent D-4 an
account for his services under cover of a letter dated 31
December 1991, (Annexure Da). D-4 has refused to pay this
account in all the circumstances, (Annexure Db.) D
(b) The V akalatnama granted to D-4's advocate was strictly limited
by deliberate choice. It is annexed hereto as An"'lexure E.

The full circumstances surrounding the grant of the Vakalatnama, E
were set out in sub-paragraph (a) above. It will be observed that
the V akalatnama is in favour of only the following persons "Sri A.
Misra, H.P. Rath, P. Panda, G. Rath, B. Das Advocates". There is
no right to delegate. The persons who signed the two "application"
,dated 3J.July and 24August 1991 respectively was not authorized by
D-4 in its Vakalatnama to act on its behalf. F
Those documents are accordingly unauthorised, a nullity and void.
It is submitted that neither was an "application" and accordingly
neither constitutes a step in the action.

(c) It will be observed, further, that the Vakalatnama is specifically G
given only in respect of Misc. Case No. 143 of 1991, and no other
court proceedings. This was also deliberate, because D-4 was at
all times anxious to ensure that it preserved its right to have any
disputes settled by arbitration as agreed, as can be :;een from the
correspondence annexed hereto and referred to above, and the H
274 SUPREME COURT REPORTS [1994] 1 S.C.R.

A further letters dated 7 August, 19 August and 4 October, 1991
annxed hereto and marked Annexure 'F'. The two impugned
"applications" are brought in Title Suit 208 of 1991. D-4 did not
authorize Mr. Misra to act in Title Suit 208 of 1991. No Vakalat-
nama authorizing any person to act on behalf of D-4 in Title Suit
208 of 1991 was filed until M/s Swarup John & Co. filed their
B Vakalatnama on........... 1991. Accordingly, it is submitted that the
impugned applications are each a nullity, void and of no effect,
and therefore could not be a step in the action.

(d) It will be observed, further, that the Vakalatnama as filed is
c granted by D-4 only. D-5 - 11 are not parties to that Vakalatnama.
D-5 - 11 had not been properly served in any of these proceedings
in. July and August 1991 when the impugned applications were
filed. They had not issued any Vakalatnama not were any
Vakalatnama's either given to Mr. Misra or filed on behalf of D-5
- .11, and for this reason, also, the impugned applications are void
D and of no effect.

(e) In all these circumstances it is further or alternatively submitted
that the Hon'ble Court erred on both occasions in granting time
on the basis of each of the two impugned applications. It is
E submitted that the Hon'ble Court had no power to act on applica-
tion brought by persons without authority and/or in the wrong
proceedings and/or on behalf of the wrong parties and/or in
response to void applications, and accordingly the Hon'ble Court
made a serious mistake;''

F Alongwith the affidavit all the documents mentioned in it were also
filed.

19. The trial court, however, dismissed the application for stay filed
by defendant No ..4 and defendants 5 to 11 by its order dated 23rd June,
G 1992.

20. At this stage it would be useful to state the facts in relation to an
application filed under Section 3 of the Foreign Awards Act on behalf of
defendants 1 to 3 (suppliers).

H 21. It will be noticed that so far as the suppliers are concerned, they
>...
S.HANDEL5BANKEN v. INDIANCHARGECHROMELTD.[DAYAL,J.) 275

never pat _in any appearance to oppose the application for ad interim A
injunction that the plaintiff had filed against defendants 4 to 12. They,
however, filed the application purporting to be under Section 3 of the
Foreign Awards Act for stay of the suit in view of three separate contracts
entered into between the borrower and the suppliers containing arbitration
clauses.
B
22. The application filed on behalf of defendants 1 to 3 (suppliers)
was also dismissed by the trial court on the same date.

23. The trial court relied on the decision of this Court in Renusagar
Power Co. Ltd. v. General Electric Company and Another, A.I.R. (1985) S.C. C
1156, and noticed the conditions required for stay of Suit under Section 3
of the ·Foreign Awards Act as held by this Court in the said case, which
read as under:

(i) There must be an agreement to which Article II of the Con-
vention set forth in the Schedule applies; D
(ii~ a party to that agreement must commence legal proceedings
against another party thereto;

(iii) the legal proceedings must be "in respect of any matter agreed
to be referred to arbitration" in such agreement; E

- (iv) the application for stay must be made befort>. filing the written
statement or taking any other step in the legal proceedings;

(v) ·the Court has to be satisfied that the agreement is valid,
operative and capable of being performed; this relates to the F
satisfaction about the 'existence and validity' of the arbitration
-1 agreement; and

(vi) the Court has to be satisfied that there are disputes between
the parties with regard to the matters agreed to be referred; G
this relates to effect (scope) of the arbitration agreement
touching the issue of arbitrability of the claims."

24. After noticing the analysis of Section 3 of the Foreign Awards
Act in Renusagar's case it took the view that all the defendants have failed
to satisfy condition numbers (i), (iii), (v) and (vi) and defendant No. 4 have H
276 SUPREME COURT REPORTS [1994] 1 S.C.l?..

A not satisfied/fulfilled condition ·No. (iv) also, by its impugned judgment
dated 23rd June, 1992.
·>--
25. Three sets of revision petitions were filed before the High Court
- one on behalf of defendants 1 to 3 (suppliers) second on behalf of
defendant No. 4 (one of the lenders) and third on behalf of defendants 5
B
to.11 (other lenders). The High Court by its impugned order dated 17th
June, 1993 dismissed all the three revision petitions. It took the view that
condition Nos. (i); (ii); (iii) and (vi) as laid down by this Court in the
aforesaid case of Renusagar were satisfied in respect of all the defendants.
It, however, took the view that so far as condition No. (v) is concerned it
C is not satisfied in respect of all the defendants. It held that the agreements
for arbitration by different arbitrators one between defendants 1 to 3 and
the borrower (plaintiff) and the other between the borrower .(plaintiff) and
lenders by other set of arbitrators make the agreements inoperative and
are not capable of being performed. The High Court, however, again
D affirmed the finding of the trial court that defendant No. 4 has not satisfied
condition No. (iv) in as must as before filing the application for stay,
defendant No. 4 had taken other steps in the legal proceedings.

26. There was no dispute before us so far as the lenders' applications
E were concerned that they were governed by Section 3 of the Foreign
Awards Act for the purpose of stay of the suit as the arbitration was
contemplated under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce, which was to take place in Stock-
holm and the parties rights were to be governed by Swedish Law. .There-
F fore, we are dealing first with the question of compliance of Section 3 of
the Foreign Awards Act on behalf of defendant No. 4 and defendants 5 to
11. Section 3 of the Foreign Awards Act reads as under: -
'
••
"3. Stay of proceedings in respect of matters to be referred to
arbitration - Notwithstanding anything contained in the Arbitration
G Act, 1940, or in the Code of Civil Procedure, 1908, if any party to
an agreement to which Article II of the Convention set forth in
the Schedule applies, or any person claiming through or under him
commences any legal proceedings in any court against any other
party to the agreement or any person claiming through or under
H him in respect of any matter agreed to be referred to arbitration
S. HANDELSBANKEN v. INDIAN CHARGE CHROME LTD. [DAYAL, J.) 277

in such agreement, any party to such legal proceedings may, at any A
time after appearance and before filing a written statement or
taking any other step in the proceedings, apply to the Court to stay
the proceedings and the Court, unless satisfied, that the agreement
is null and void, inoperative or incapable of being performed or
that there is not, in fact, any dispute between the parties with
regard to the matter agreed to be referred, shall make an order
B
staying the proceedings."

27. Condition No. (iv) as culled out from the decision in the case of
Renusagar (supra) is really not complete. The condition really is that where
one of the parties to the arbitration agreement, inspite of it, commences c
any legal proceedings in any court against the other party, any party to such
legal proceedings may, at any time after appearance and before filing a
written statement or taking any other step in the proceedings, apply to the
Court to stay the proceedings. One of the· conditions for applicability of
condition No. (iv) is that there must be appearance on its behalf before D
court in which the proceedings are pending and after filing appearance,
but before filing the written statement or taking other steps in those
proceedings, the party concerned must apply for stay. The condition of
putting in appearance is equally important. It is clear from the discussions
of the facts by the trial court as well as in view of the affidavit filed on E
behalf of defendant No. 4 of Ms. Barbro Margareta Lundberg and the
express instructions conveyed to its counsel with the power of attorney
dated 28th June, 1991 which was specifically limited to the Misc. Case No.
143 of 1991, it limited the act of appearance merely to oppose the applica-
tion for ad interim injunction operating against defendant No. 4. It is again
clear that the party concerned must put in appearance in the suit before F
applying for stay under Section 3 of the Foreign Awards Act. At the stage
applications purporting to be on behalf of defendants 4 to 11 were filed on
31st July, 1991 and 24th August, 1991, seeking time to file written state-
ment, no appearance had been filed on behalf of defendant Nos. 5 to 11
at all and no appearance had been filed in the suit on behalf of defendant G
No. 4. It will again be observed that the Vakalatnama dated 24th June, 1991
was specifically given in respect of Misc. Case No. 143of1991 and no other
court proceedings. No power of attorney was filed on behalf of defendant
No. 4 in the suit at all with either of the two applications seeking time for
filing written sratement. The applications for seeking time were filed con- H

I
278 SUPREME COURT REPORTS (1994) 1 S.C.R.

A trary t-0 the express instructions given to the Counsel appearing on behalf
of defendant No. 4 vide communication dated 19th June, 1991 as is clear
from paragraphs 1 to 3 thereof which are as under: - \

" ,·
"1. T'...te instructions at present are to contest only the jurisdiction
of the court in Cuttack over Defendants 4 to 11 in the pending
B proceedings.

£.Accordingly, you are under no circumstances to take any step
in the action (in the technical sense) or to do anything else which
might be construed as a submission to the jurisdiction of any Indian
c court in respect of this matter.

3. Clients and the Syndicate of banks they represent consider this
matter to be so important that you are not to diven from these
instructions without express written instructions either from
Svenska Handelsbanken (in the person of Mrs. Lundberg or Mrs.
D Malin) or from my firm."

28; The relevant part of second communication dated 17th July, 1991 -+--
which was sent by Fax reads as follows: -

"May I please remind you that your present instructions- are only
E to bring the pending Application relating to jurisdiction in the
Court of the Subordinate Judge in Cuttack, and not to take any
other steps either in that Application or in the main action. Shonld
we lost and you wish to advise an Appeal, please do so and seek
written jnstructions from us."
F
29. The express instructions were a~ain given to the counsel on 1st
August, 1991 by Fax, relevant part whereof reads as under: -

"As I understand the position we are awaiting a decision of the
lower court on Monday 5 August. Whatever that decigion may be
G your express instructions remaiµ. to take no qther step whatever in
either the application or the action without the written instrui;tions
of this firm or the clients. Under no circumstances should any step
be taken in the action which would submit either Svenska or any
of the other members of the Banking Consortium to the jurisdiction
H of the Indian Courts."

I
A.,
S,HANDELSBANKEN v. INDIAN CHARGE CHROME LTD. [DAYAL;J.) 279

30. We may als<> at this stage qnote the actual power of attoraey A
executed 'on behalf of defendant No. 4 in Misc. Case No. 143 of 1991 which
reads:

"Svenska Handelsbanken

FORM OF VAKALATNAMA B

IN THE COURT OF THE SUBORDINATE JUDGE, CUTIACK

Miscellaneous Case No. 143 of 1991

BETWEEN c
INDIAN CHARGE CHROME LTD.
versus
ASEA STAL AB & ORS.

Know all men by these presents, that by this Vakalatnama. D
We, Svenska Handelsbanken, Kungstradgardsgatan 2, S-106 70
Stockholm, Sweden.

Opposite party No. 4 in the aforesaid Case, do.hereby appoint and
retain Sri A. Misra, H.P. Rath, P. Panda, G. Rath, B. Das Advo- E
cates to appear for us, in the above case 'and to conduct and
prosecute (or defend) the same and all proceedings that may be
taken in respect of any application connected with the same, or
any decree or order passed therein including all applications for
return of documents or receipt of any moneys that may be eayable
F
to us in the said case and also in applications for review, appeals
under Orissa High Court Order and in applications for leave to
appeal to Supreme Court.

Dated 1991
G
Received from the executant(s) satisfied and accepted as I hold
no brief for the other side.

Advocate Svenska Handelsbanken
sd/- sd/-
Astor Olsson Lars Kinander H
280 SUPREME COURT REPORTS [1994) 1 S.C.R.

A Accepted as above

Advocate Signatures of the Executants

Accepted as above

B Advocate

Accepted as above

Advocate

C 31. It will be noticed that this power of attorney is not is usual terms
which normally authorise a counsel to enter into compromise or to appoint
any other counsel on his behalf. The power of attorney is specifically in
Misc. Case No. 143 of 1991. Again it contains no power on the counsel to
appoint any other counsel on his behalf in the application even.

D 32. A combined reading of the correspondence as disclosed in the
affidavit filed on behalf of defendant No. 4 shows that no power of attorney
has been executed on behalf of defendant No. 4 in favour of any counsel
so far as the main suit is concerned. The counsel was given express
instructions not to put in appearance or take any step in the proceedings
E relating to suit. If the applications dated 31st July, 1991 and 24th August,
1991 had been moved with either express ot implied instructions of the
lender, defendant No. 4, .there can be no doubt that it would normally
amount to taking legal steps in the proceedings relating to suit. But in view
of the power o.f attorney being merely to the proceedings in Misc. Case
No. 143 of 1991 coupled with the express instructions to the contrary, the
F counsel had no power or authority to file any application seeking time for
filing written statement. The filing of the two applications is totally ultra
vires the authority and specific instructions of defendant No. 4 and was thus
totally unauthorised and of no effect on defendant No. 4.

G 33. As late as 1930 the Privy Council in the case of Sourendra Nath
and Others v. Tarubala Dasi, A.I.R. (1930) P.C. 158, made the following
two observations at page 161 of the report: -

"Two observations may be added. First, the implied authority of
counsel is not an appendage of office, a dignity added by the Courts
H to the status of barrister or advocate at law: It is implied in the
S.HANDELSBANKEN v. INDIANCHARGECHROMELID.[DAYAL,J.) 281

interests of the client, to give the fullest beneficial effect to his A
~.
employment of the advocate. Secondly, the implied authority can
always be countermanded by the express directions of the client.
No. advocate has actual authority to settle a case against the
express instructions of his client. If he considers such express
instructions contrary to the interests of his client, his remedy is to
return his brief."
B

34. The Supreme Court also had an occasion to examine the power
of the pleader to enter into a compromise without the consent of the
"--{
concerned party in the case of Smt. Jamilabai Abdul Kadar v. Shankarlal
Gulabchand and others, [1975) 2 S.C.C. 609. It upheld the implied power
of the Advocate as well as the Pleader to compromise but in paragraph 9
c
of the judgment observ.;d that one thing is certain "that if a suitor counter-
mands his pleader's authority to enter into compromise or withholds, by
express recital in the vakalat, the power to .compromise the legal proceed-
ing, the pleader (or, for that matter, the advocate) cannot go against such
advice and bind the principal, his client. This is as illegal as it is unprofes- D
- .... sional."

35. We are thus constrained to reverse the findings of both the trial
court as well as the High Court regarding non-satisfaction of condition No.
(iv) as noticed in the case of Renusagar (supra) by defendant No. 4. On
the other hand we are constrained to hold that no appearance whatsoever E
was made by defendant No. 4 so far as the suit is concerned and in fact
the instructions were to the contrary so far as the counsel is concerned. He
acted contrary to express instructions and defendant No. 4 cannot be
bound by such unauthorised "acting" by its advocate contrary to the express
instructions. Since there was no appearance also on behalf of defendant
No. 4 in the suit no question arose of taking any steps in such proceedings F
and, therefore, condition No. (iv) as contemplated in the case of Renusagar
(supra) is full satisfied by defendant No. 4 as well as by defendants 5 to
11.

36. It will be noticed that the only other finding of the High Court
G
against defendant No. 4 for declining stay of the suit is common with other
defendants/appellants before us, namely that they have not satisfied condi-
~ '
tion No. (v) as spelt out in the aforesaid case of Renusagar.

37. The High Court at the end of paragraph 8 of its judgment gave
the following findings:_: H
282 SUPREME COURT REPORTS [1994] 1 S.C.R.

A "Thus, factually, I am satisfied that Article II of the convention set
forth in the schedule to the Foreign Awards Act applies to each
of the agreements with the three sets of applicants. Suit out of
which these Civil Revisions arise as a legal proceedings initiated
by plaintiff which is a party to each of the agreements with the
applicants. Such suit relates broadly to defects in the equipments
B supplied, erection and commission of the power plant by defendant
Nos. 1 to 3 and non-satisfaction of terms for paymeat to defendant
Nos. 1 to 3 by defendant No. 4. These are all in respect of matters
agreed to be referred to arbitration as per the clause to that effect
in the various agreements. By alleging fraudulent misrepresenta-
c tions in the plaint against the applicants, plaintiff cannot avoid the
arbitration clauses in view of the broad language of the different
clauses, where question of fraudulent representation can also be
effectively answered in the award to be binding on the parties to
the agreement. Therefore, conditions (i), (ii), (iii) and (vi) as laid
down by the Supreme Court for application of Section 3 are
D
satisfied in this case in respect of all the applicants."

Again in paragraph 16 of the judgment it was observed thus: -

"It is next to be examined whether condition No. (v) is satisfied in
E respect of these thr~e applications. There can be no doubt that each
of the agreements standing by itself is valid, operative and capable
of being perfonned. Thus, the condition relating to existence and
validity of each of the agreements are satisfied. But when all the
agreements are put together, a different situation arises."
F
38. We are concerned with the validity, operativeness and capability
of being performed of the arbitration agreements - (1) between the bor-
rower and the suppliers and (2) between the borrower and the lenders.
The finding of the High Court is that they are valid, operative and capable
of being performed if left w1th themselves between the borrower and the
G suppliers on the one hand and between the borrower and the lenders on
the other. The High Court, however, took the view that they have became
inoperative as the agreement with the lenders is before one set of ar- -~
bitrators in a proceedings to be held at Stockholm i.e. against the lenders
and before other set of arbitrators in proceedings to be held at Paris i.e.
H against the suppliers, though, the b~dy, which is to conduct the arbitration
S.HANDELSBANKEN v. INDIANCHARGECHROMELTD.(DAYAL,J.) 283

proceedings is the same. This make the agreements either invalid, inopera- A
tive or incapable of being performed.

39. The above extracts and reasoning of the judgment of the High
Court show that each of the three defendants 1 to 3 had satisfied all the
requirements of Section 3 of the Foreign Awards Act and each was entitled
to have the suit proceedings stayed against them so that the disputes could B
be resolved only by the Foreign arbitration proceedings stipulated by them
with the plaintiff in their respective arbitration agreements.

40. The only ground given by the High Court for refusing the stay of
the suit against defendants 1 to 3 is as mentioned earlier. The High Court C
has also pointed out that since the plaint does not make severable allega-
tion::. against different defendants who are parties to different contracts,
with different arbitration agreements and the allegations made by the
plaintiff against different defendants are such that they cannot be separated
from each other and since the arbitrations between the plaintiff and
different defendants may have to go to different arbitrators, all the arbitra- D
tion clauses must be treated as having become inoperative. It has further
been observed by the High Court that if all the agreements containing
arbitration clauses with different defendants had envisaged only one ar-
bitrator for adjudicating all the disputes,. the fact that there were several
agreements with the different defendants would not have effected the E
matter and the award given by common arbitrators could have bound all
the parties in the suit.

41. It appears to us that the aforesaid reasoning of the High Court
--"'f is strained and totally erroneous. It also amounts to disregarding the
mandatory provision of Section 3 of the Foreign Awards Act. F
42. For purposes of the present case we are, for the present, con-
sidering merely the applications for stay of the suit filed on behalf of the
lenders. It is clear from their applications that all the conditions envisaged
for the applicability of Section 3 of the Foreign Awards Act are fully G
complied with.

---..... 43. The plaintiff by merely entering into other contracts with different
parties cannot prejudice or defeat the rights of the different party under
the different contract, particularly when the right to foreign arbitration has
been provided by Parliament as an indefeasible right in which the court, H
284 SUPREME COURT REPORTS [1994] 1 S.C.R.

A does not have any kind of discretion.
44. The arbitration is contemplated as per Section 3 of the Foreign
Awards Act. The plaintiff by filing a plaint, cannot make. the arbitration
clause invalid or inoperative. Therefore, the finding of the High Court that
the arbitration agreements have become inoperative and incapable of being
B performed or invalid is erroneous in law and, therefore, must be set aside.

45. Mr. Venugopal, learned counsel for the borrower/plaintiff
referred us to clause 18 of the agreement so for as the lenders are
concerned which reads as under: -
c "18. GOVERNING LAW : JURISDICTION

18.02 All disputes arising from the provisions of this Agreement
or its performance shall be finally settled by arbitration under the
Rules of Conciliation and Arbitration of the International Cham-
ber of Commerce by thre~ arbitrators appointed in accordance
D with these rules. Arbitration shall take place in Stockholm and be
conducted in the English language: The award of the arbitral
tribunal is final and obligatory for the parties without any right for
a further appeal or contestation of its fulfilment. The Borrower
hereby expressly submits to the jurisdiction of the above mentioned
E arbitration tribunal.

18.03 Notwithstanding the provisions of the foregoing Clause, the
Lender reserves the right to commence proceedings against the
Borrower in the Courts of India or Sweden or the United Kingdom
or the State of New York and the Borrower he.reby expressly
F submits to the jurisdiction of such courts.

18.04 The Borrower hereby irrevocably appoints the Ambassador
of India to Sweden as its process agent to receive service of any ·
proceedings on its behalf."
G 46. Mr. Venugopal submitted taat in view of clause i8.03 there is no
arbitration clause at all in the contracts governing the lenders as one party
alone is bound by such an agreement and the other is not bound by such
agreement, the agreement is not an arbitration agreement. It was submitted
that inasmuch as clause 18.02 of the contract declares "the borrower hereby
H expressly submits to the jurisdiction of the advementioned arbitration
S.HANDELSBANKEN v. INDIANCHARGECHROMELlD. [DAYAL,J.] 285

tribunal" but clause 18.03 through a non-obstante clause relieves the lenders . A
of their duty to have the disputes settled through arbitration and authorises
the lenders to commence proceedings in the courts of India or any other
country as the lenders may determine. It was submitted that it is only in
the agreement of defendant No. 4 that instead of any other country, which
is struck off, Sweden, the United Kingdom or the State of New York are B
mentioned. However, clause 18.04 makes it clear that the real purpose of
rendering clause 18.02 inapplicable was to enable the -lenders to sue the
borrower in Sweden. It was submitted that where the arbitration clause is
- '(- rendered inapplicable to a party to the dispute at his choice, the said clause
is no arbitration clause at all.
c
47. It will be noticed that it is totally a new point urged on behalf of
the plaintiff borrower that there is no arbitration clause so far as defendant
No. 4 and defendants 5 to 11 are concerned.

48. Since it is a disputed question of fact, we ought not to allow it to
be raised for the first time. However, the arbitration agreements are before D
us and the clause is admitted. Defendant No. 4 has through out been
relying upon clause 18.02 of the contract and still is ready and willing to
have the dispute settled by arbitration under the said clause, should the
plaintiff raise it before the ICC in accordance with clause 18.02. It is the
plaintiff who is resisting arbitration and once the suit instituted by it in E
India is stayed, it is for the plaintiff to have the matter resolved by
arbitration.

49. Clause 18.02 of the contract is the arbitration agreement. It
' -1' clearly provides that "all disputes .... shall be finally settled by arbitra-
tion.... the award of the arbitral Tribunal is final and obligatory for all F
purposes without any right for a further appeal or contestation of its
fulfilment...." Both parties are, therefore, required to have the disputes
settled by arbitration and both parties are bound by the award.

50. It is significant to note that in the present case, no dispute is being G
raised by defendant No. 4. It is only the plaintiff who is disputing its libaility
to pay.

51. When parties agree to have their disputes settled by arbitration
it does not mean that both have bound themselves not to go to court to
have the disputes settled. At page 163 of the Russel on Arbitration 20th H
286 SUPREME COURT REPORTS [1994] 1 S.C.R.

A Edition it is stated that; "a party to a contract to refer disputes to arbitra-
tion has a perfect right to bring an action in respect of those disputes, and
the court has jurisdiction to try such disputes. Any provision to the contrary
would be an ouster of the jurisdiction of the Courts."

52. Lord Macmillan in the House of Lords decision in Heyman v.
B Darwins, (1942) A.C. 356 at 373 = 166 L.T. 306 at 312 pointed out as
under:-

"I venture to think that not enough attention has been directed to
the true nature and function of an arbitration clause in a contract.
c It is quite distinct from the other clauses. The other clauses set
out the obligations which the parties undertake towards each other
hinc inde. But the arbitration clause does not impose on one of
the parties an obligation in favour of the other. It embodies the
agreement of both parties that if any dispute arises with_ regard to
the obligations which the one party has undertaken to the other,
D
such dispute shall be settled by a tribunal of their own constitution."

53. It may be that even after entering into an arbitration clause any
party may institute lega:i. proceedings. It is for the other party to seek stay
of the suit by showing the arbitration clause and satisfying the terms of the
E provisions of law empowering the court to stay the suit. Clause 18.03, ',
therefore, merely states what is otherwise the legal position. The object of
clause 18.03 is to reserve to defendant No. 4 the right to suit for money
advanced. It is intended to be exercised in cases where there is no dispute
whatsoever but still payments have not been made. These are standard ......,._ ..
F clauses in all credit agreements. Clause 18.03 gives an additional right. To
the extent this clause is exercised in cases where there are disputes, it
would be the exercise of a legal right and ~oth parties have agreed that the
borrower will submit to the jurisdiction of the court. In such an eventually
defe-!ldant No. 4 would have elected to exercise the right under clause
18.-03, which is in addition to and not in derogation of the arbitration clause
G in Clause 18.02. As the arbitration clause remains untouched by clause
18.03, if defendant No. 4 was to sue the plaintiff under clause 18.03 for
recovery of its. loan, it may be open to the plaintiff (borrower) to apply
u.nder Section 3 and seek stay of the suit. The stay of the suit could be
granted notwithstanding clause 18.03 for the simple reason that the agree-
H ment to submit to the jurisdiction to the court under clause 18.03 relates

I
S. HANDELSBANKEN v. INDIAN CHARGE CHROME LTD. [DAYAL, J.] 2f37

to the maintainability of the suit in a Court agreed to by both parties, but A
does not affect the question whether the proceedings should be stayed in
view of the arbitration clause. The plaintiff may well elect to have the
dispute decided in Court or it may apply under Section 3 of the Foreign
Awards Act or a similar provision in Sweden, England or United States,
depending on where the defendant No. 4 fi!es the suit. Such clauses like
clause 18.03 do not affect the factum or binding nature of the arbitration B
agreement in clause 18.02.

54. There is no question of parallel proceedings by reason of the
non-obstante clause in clause 18.03. The plaintiff can have the dispute
settled by arbitration as agreed in clause 18.02 or it may have the dispute C
settled in a Court in proceedings instituted by defendant No. 4. However,
the plaintiff cannot institute proceedings in any Court against defendant
No. 4. It is clear from a reading of clause 18.02 and clause 18.03 that there
will be no parallel proceedings. \

55. There is thus no obstacle in the applications filed on behalf of D
defendant No. 4 and defendants 5 to 11 for staying the suit filed by the
borrower/plaintiff under the provisions of Section 3 of the Foreign Awards
Act.

56. Coming now to the application filed on behalf of defendants 1 to
3 under Section 3 of the Foreign Awards Act, Mr. Venugopal submitted a E
new argument in supporting the conclusion of the courts below. The
argument was that so far as defendants 1 to 3 are concerned, Section 3 of
the Foreign Awards Act is not applicable in view of the agreement between
the borrower .and the suppliers as contained in clause 14 of the contract.
He further submitted that since as per clause 14.1, the contract was to be F
construed and governed according to the laws of India, the application for
stay of suit should be governed by Indian Arbitration Act, 1940 and not by
Section 3 of the Foreign Awards Act, which though is an Indian law, yet,
in view of the provisions of Section 9(b) of the Foreign Awards Act, this
Court should take a view that only Section 34 of the Arbitration Act, 1940 G
would apply to the present suit in view of clause 14.1 of the contract.

57. Learned counsel appearing on behalf of the suppliers/defendants
1 to 3 submitted that this point should not be allowed to be raised for the
first time at this stage and, at any rate, Section 9(b) of the Foreign Awards
Act applies only at the stage 'after the award' and does not apply to the H
288 SUPREME COURT REPORTS [1994] 1 S.C.R.

A stage 'bef.ore award'.
58. However, the question whether Section 34 of the Arbitration Act,
1940 or Section 3 of the Foreign Awards Act will govern the applic!ation
filed on behalf of defendants 1 to 3 is concerned, need not detain us,
inasmuch as we have already held that th~ suit filed by the plaintiff, as such,
B is liable to be stayed in view of the applications for stay filed by the lt:nders
i.e. defendant No. 4 and defendants 5 to 11 and, therefore, we leave this
question open.

59. The result is that the appeals filed on behalf of defendant No. 4
and defendants 5 to 11 are accepted; the impugned order of the High
c Court dated 17th June, 1993 and of the trial court dated 23rd June, 1992 ,
are set aside and the suit is directed to be stayed as contemplated by
Section 3 of the Foreign Awards Act. The orders of the trial court on the
application for stay filed on behalf of defendants 1 to 3 are also set aside
but in view of our orders on the application filed on behalf of the lenders,
D no separate orders are being passed on the application for stay filed on
behalf of defendants 1 to 3. Parties are, however, left to bear their own
costs of the present proceedings.

R.S.K. Appr.als allowed.

-I