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1984 (8) TMI 295 - SC - Companies LawWhether under sec. 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961, having regard to its scope, a suit in the nature of a petition under sec. 33 of the Arbitration Act, 1940 could be stayed ? If, so whether the Ist Respondents have made out a case for staying the Appellants suit No. 832 of 1982 ? Whether the three claims referred by the Ist Respondents to the Court of Arbitration of the 2nd Respondents are beyond the scope of the Arbitration Clause being Article XVII contained in the Contract dated August 24, 1964 or they are arising out of or related to the said Contract ? Held that - Appeal dismissed. The issue pertained to the arbitrability of the three claims under the Arbitration clause in the contract and depended upon the proper construction thereof in light of the conduct of the parties and surrounding circumstances and no prejudice was caused to any of the parties as both Renusagar s application for injunction and G.E.C. s stay petition under sec. 3 were heard together and parties did put before the Court-Trial Court, the Appeal Court and even before us the entire material such as each wanted to rely upon and sought a decision on the concerned issue and we are satisfied that the finding recorded by both the lower courts on the issue is correct; and in that view of the matter the prayer for injunction restraining arbitration sought by Renusagar could not be granted and was rightly refused.
Issues Involved:
1. Whether a suit in the nature of a petition under Section 33 of the Arbitration Act, 1940 can be stayed under Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961. 2. Whether the three claims referred to arbitration are beyond the scope of the Arbitration Clause in the Contract. Analysis of Judgment: Issue 1: Stay of Suit under Section 3 of the Foreign Awards Act Scope of Section 3: The Court analyzed Section 3 of the Foreign Awards Act, which mandates staying legal proceedings if the conditions specified are met. The section overrides the Arbitration Act, 1940, and the Code of Civil Procedure, 1908. It requires that legal proceedings be stayed unless the agreement is null and void, inoperative, or incapable of being performed, or there is no dispute regarding the matter agreed to be referred to arbitration. Comparison with Section 34 of the Arbitration Act: Unlike Section 34 of the Arbitration Act, which confers discretion, Section 3 of the Foreign Awards Act is mandatory. The Court noted that the Foreign Awards Act is designed to facilitate speedy settlement of disputes through arbitration, particularly in international trade. Determination of Arbitrability: The Court emphasized that the determination of whether the matter is agreed to be referred to arbitration depends on the language of the arbitration clause. The Court found that the arbitration clause in the contract was broad enough to include disputes regarding the existence, validity, and effect (scope) of the arbitration agreement. Final Decision on Arbitrability: The Court held that questions of arbitrability could be initially determined by the arbitrators but are subject to final determination by the Court. This ensures that dilatory tactics by parties are avoided, and arbitration can proceed without undue delay. Issue 2: Scope of Arbitration Clause Language of the Arbitration Clause: The arbitration clause in the contract stated that any disagreement "arising out of or related to" the contract shall be settled by arbitration. The Court found this language to be of the widest amplitude, capable of encompassing disputes regarding the scope and effect of the arbitration agreement. Nature of the Claims: The three claims referred to arbitration were: 1. Unpaid Regular Interest (2.1 million U.S. dollars). 2. Delinquent Interest (U.S. $ 7,84,151.84). 3. Compensatory Damages (4.1 million U.S. dollars). Connection to the Contract: The Court determined that the first two claims arose directly under the contract, as the contract contained provisions for the payment of interest on the unpaid purchase price after June 30, 1967. The promissory notes issued were not in complete discharge of the obligation under the contract but were intended as conditional payments. Third Claim for Compensatory Damages: The Court found that this claim was consequential upon the non-payment of the first two claims and was closely connected with the terms and conditions of the contract. Therefore, it was also covered by the arbitration clause. Relevant Case Law: The Court referred to several authorities, including: - Heyman v. Darwins Ltd.: Differentiated between disputes "arising out of" and "under" the contract, with the former being broader. - Govt. of Gibraltar v. Kenney: Held that a quantum meruit claim was covered by a broad arbitration clause. - Union of India v. Salween Timber Construction: Established that if recourse to the contract is necessary to determine the claim, it falls within the arbitration clause. Conclusion on Scope: The Court concluded that all three claims fell within the scope of the arbitration clause, which was broad enough to cover disputes regarding the arbitrability of the claims. Final Judgment: The Court dismissed the appeals, upholding the stay of the suit and confirming that the three claims were within the scope of the arbitration clause. The decision on the issue of arbitrability by the Court was deemed final and binding, ensuring that the arbitration could proceed without further legal hindrance.
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