1992 (5) TMI 177 - SC - Companies Law

Whether the High Court was right in rejecting the appellant s application filed under the provisions of the Arbitration Act, 1940 and in holding that the award which was made in London on an arbitration agreement was not governed by the law of India and that it was a foreign award within the meaning of the Foreign Awards Act and beyond the jurisdiction of the Indian Courts except for the purpose of recognition and enforcement under the latter Act? Held that - All substantive rights arising under the agreement including that which is contained in the arbitration clause are, in our view, governed by the laws of India. In respect of the actual conduct of arbitration, the procedural law of England may be applicable to the extent that the ICC 132 Rules are insufficient or repugnant to the public policy or other mandatory provisions of the laws in force in England. Nevertheless, the jurisdiction exercisable by the English courts and the applicability of the laws of that country in procedural matters must be viewed as concurrent and consistent with the jurisdiction of the competent Indian courts and the operation of Indian laws in all matters concerning arbitration in so far as the main contract as well as that which is contained in the arbitration clause are governed by the laws of India. The Delhi High Court was wrong in treating the award in question as a foreign award. The Foreign Awards Act, has no application to the award by reason of the specific exclusion contained in Section 9 of that Act. The award is governed by the laws in force in India, including the Arbitration Act, 1940. Accordingly, we set aside the impugned judgment of the Delhi High Court and direct that Court to consider the appellant s application on the merits in regard to which we express no views whatsoever. The appeal is allowed in the above terms.

Issues Involved:
1. Jurisdiction of the Delhi High Court
2. Governing law of the arbitration agreement
3. Applicability of the Foreign Awards (Recognition and Enforcement) Act, 1961
4. Procedural and substantive law governing arbitration

Issue-wise Detailed Analysis:

1. Jurisdiction of the Delhi High Court:
The primary issue was whether the Delhi High Court had jurisdiction to entertain the application filed under the Arbitration Act, 1940. The High Court had dismissed NTPC's application, holding that the award was not governed by the Arbitration Act, 1940, and that only English Courts had jurisdiction to set aside the award since the arbitration was conducted in London. The Supreme Court, however, concluded that the proper law governing the arbitration agreement was Indian law, and the competent courts in India must necessarily have jurisdiction over all matters concerning arbitration, thus overturning the High Court's decision.

2. Governing Law of the Arbitration Agreement:
The Supreme Court examined whether the arbitration agreement was governed by Indian law or English law. The contract between NTPC and Singer explicitly stated that Indian law would govern the contract and that the courts of Delhi would have exclusive jurisdiction in all matters arising under the contract. The Court emphasized that the arbitration agreement, though collateral to the main contract, is part of the contract. Therefore, the arbitration agreement was governed by Indian law, not English law.

3. Applicability of the Foreign Awards (Recognition and Enforcement) Act, 1961:
The High Court had treated the award as a foreign award under the Foreign Awards Act, 1961, which NTPC challenged. The Supreme Court held that the Foreign Awards Act did not apply because the arbitration agreement was governed by Indian law. Section 9 of the Foreign Awards Act explicitly excludes its application to any award made on an arbitration agreement governed by Indian law. Consequently, the award in question was not a foreign award but was governed by the Arbitration Act, 1940.

4. Procedural and Substantive Law Governing Arbitration:
The Court clarified the distinction between substantive law and procedural law in the context of arbitration. The substantive law governing the arbitration agreement, which includes its validity, effect, and interpretation, was Indian law. However, procedural matters related to the conduct of arbitration, such as the place of arbitration and procedural rules, could be governed by the law of the place of arbitration (English law in this case) to the extent that they did not conflict with the public policy or mandatory requirements of Indian law. The Court noted that the ICC Rules, chosen by the parties, provided a self-contained procedural framework for arbitration.

Conclusion:
The Supreme Court concluded that the Delhi High Court erred in treating the award as a foreign award and held that the Arbitration Act, 1940, applied to the award. The Court set aside the High Court's judgment and directed it to consider NTPC's application on the merits. The appeal was allowed, and no order as to costs was made.

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