2014 (2) TMI 1170 - SC - Indian Laws

Arbitration agreement - Is the IPLA a valid and a concluded contract? Is it for the Court to decide this issue or have the parties intended to let the arbitral tribunal decide it - Held that - there is a legal relationship between the parties of a long standing. Section 44 of the Indian Arbitration Act, 1996 applies to arbitral awards of differences between persons arising out of legal proceedings. Such a relationship may be contractual or not, so long it is considered as commercial under the laws in force in India. Further, that legal relationship must be in pursuance of an agreement, in writing, for arbitration, to which the New York Convention applies. The court can decline to make a reference to arbitration in case it finds that the arbitration agreement is null and void, inoperative or incapable of being performed. There are no pleadings to that effect in the plaint. The Daman Trial Court findings that the contract is null and void and not based on free consent were rendered in the absence of relevant pleadings. There is a mention in one of the e-mails that Dr. Wobben has taken advantage of his friendship with Mr. Yogesh Mehra. But that seems to be more of a sulk than a genuine grievance. - issue as to whether there is a concluded contract between the parties can be left to the Arbitral Tribunal, though not for the same reasons. The parties have irrevocably agreed to resolve all the disputes through Arbitration. Parties can not be permitted to avoid arbitration, without satisfying the Court that it would be just and in the interest of all the parties not to proceed with arbitration. Furthermore in arbitration proceedings, courts are required to aid and support the arbitral process, and not to bring it to a grinding halt. - parties must proceed with the Arbitration. All the difficulties pointed out by Mr. Rohinton Nariman can be addressed by the Arbitral Tribunal. Even if there is a valid arbitration agreement/clause, can the parties be denied the benefit of the same on the ground that it is unworkable? - Held that - Courts have to adopt a pragmatic approach and not a pedantic or technical approach while interpreting or construing an arbitration agreement or arbitration clause. Therefore, when faced with a seemingly unworkable arbitration clause, it would be the duty of the Court to make the same workable within the permissible limits of the law, without stretching it beyond the boundaries of recognition. In other words, a common sense approach has to be adopted to give effect to the intention of the parties to arbitrate. In such a case, the court ought to adopt the attitude of a reasonable business person, having business common sense as well as being equipped with the knowledge that may be peculiar to the business venture. While construing the arbitration agreement/clause the same can be construed to make it workable, as such an approach is statutorily provided for. For this submission, Dr. Singhvi has rightly relied upon the provision contained in Sections 10 and 11 of the Indian Arbitration Act, 1996. The object of these two provisions is to avoid failure of the arbitration agreement or the arbitration clause if contained in contract. Under Section 10(1), there is freedom given to the parties to determine the number of Arbitrators, provided that such number shall not be an even number. The arbitration clause in this case provides that the arbitral tribunal shall consist of three arbitrators. Further, it must also be noticed that the Respondents have been trying to seek adjudication of disputes by arbitration. Parties would not have intended to have created an exceptionally difficult situation, of extreme complexities, by fixing the seat of arbitration in London. In view of the above, we are unable to accept the submissions made by Dr. Singhvi that in this case, the term venue ought to be read as seat. - even though the venue of arbitration proceedings has been fixed in London, it cannot be presumed that the parties have intended the seat to be also in London. In an International Commercial Arbitration, venue can often be different from the seat of arbitration. In such circumstances, the hearing of the arbitration will be conducted at the venue fixed by the parties, but this would not bring about a change in the seat of the arbitration. This is precisely the ratio in Braes of Dounne. Objection raised by the Appellants to the continuance of the parallel proceedings in England is not wholly without justification. The only single factor which prompted Respondent No.1 to pursue the action in England was that the venue of the arbitration has been fixed in London. The considerations for designating a convenient venue for arbitration can not be understood as conferring concurrent jurisdiction on the English Courts over the arbitration proceedings or disputes in general. Keeping in view the aforesaid, we are inclined to restore the anti-suit injunction granted by the Daman Trial Court. - The findings recorded by the Appellate Court that the parties can proceed to arbitration are affirmed. The findings recorded by the Trial Court dismissing the Application under Section 45 are set aside. - Decided partly in favour of appellant.

Summary

Issues Involved:
1. Validity and conclusion of the IPLA contract.
2. Jurisdiction to decide the validity of the IPLA contract.
3. Existence of an arbitration agreement.
4. Workability of the arbitration clause.
5. Determination of the seat of arbitration.
6. Concurrent jurisdiction of Indian and English courts.
7. Entitlement to anti-suit injunction.

Detailed Analysis:

Issue (i): Validity and Conclusion of the IPLA Contract:
The court examined whether the IPLA (Intellectual Property License Agreement) was a valid and concluded contract. The appellants argued that the IPLA was not a concluded contract as it was not in consonance with the Agreed Principles and contained discrepancies. The respondents contended that the IPLA was a concluded contract as it was signed by the parties. The court found that the parties had irrevocably agreed to resolve disputes through arbitration, as evidenced by the Heads of Agreement dated 23rd May 2006, which stated that Clause 18 of the proposed IPLA would apply to settle any disputes. The court concluded that the issues raised about the non-existence of a concluded contract were irrelevant for making a reference to arbitration.

Issue (ii): Jurisdiction to Decide the Validity of the IPLA Contract:
The court held that the issue of whether there is a concluded contract between the parties can be left to the Arbitral Tribunal. The court emphasized that the arbitration agreement is independent of the underlying contract, and the intention of the parties to arbitrate must be upheld. The court referred to Section 16 of the Indian Arbitration Act, 1996, which provides that the arbitration clause forming part of a contract shall be treated as an agreement independent of the contract.

Issue (iii): Existence of an Arbitration Agreement:
The court found that there was a valid arbitration agreement between the parties. The arbitration clause in the IPLA was very widely worded and included all disputes concerning the legal relationship between the parties. The court emphasized the overarching policy of least intervention by courts in matters covered by the Indian Arbitration Act, 1996. The court concluded that the arbitration agreement would not perish even if the IPLA had not been finalized.

Issue (iv): Workability of the Arbitration Clause:
The court addressed the concern that the arbitration clause was unworkable. The Bombay High Court had held that the arbitration clause was workable as two arbitrators were to be appointed by the licensors and one by the licensee. The Supreme Court disagreed with this conclusion, noting that the respondents had not supported this reasoning. The court emphasized adopting a pragmatic approach to make the arbitration clause workable within the permissible limits of the law. The court applied the "officious bystander" principle to supply the missing line in the arbitration clause, making it workable.

Issue (v): Determination of the Seat of Arbitration:
The court examined whether the seat of arbitration was in London or India. The court found strong indicators suggesting that the parties always understood that the seat of arbitration would be in India and that London was only a convenient venue for arbitration proceedings. The court noted that all three applicable laws (the law governing the contract, the law governing the arbitration agreement, and the curial law) were Indian laws. The court concluded that the seat of arbitration was in India.

Issue (vi): Concurrent Jurisdiction of Indian and English Courts:
The court held that the Bombay High Court erred in concluding that the courts in England would have concurrent jurisdiction. The court emphasized that once the seat of arbitration is fixed in India, it would be in the nature of exclusive jurisdiction to exercise supervisory powers over the arbitration. The court cited the principle of comity and the need to avoid conflicting judgments from courts in different jurisdictions.

Issue (vii): Entitlement to Anti-Suit Injunction:
The court restored the anti-suit injunction granted by the Daman Trial Court, restraining the respondents from proceeding with any actions in the English courts. The court noted that the main contract, the IPLA, was to be performed in India, and the governing law of the contract was Indian law. The court emphasized that the considerations for designating a convenient venue for arbitration could not be understood as conferring concurrent jurisdiction on the English courts over the arbitration proceedings or disputes in general.

Conclusion:
The court dismissed Civil Appeal No. 2087 of 2014, affirming the findings that the parties can proceed to arbitration. The court set aside the findings of the Trial Court dismissing the application under Section 45 and affirmed the findings of the Appellate Court and the High Court allowing the application for reference of the dispute to arbitration. The court appointed Lord Hoffmann as the third arbitrator and stayed the pending suits and applications in Indian courts. The court allowed Civil Appeal No. 2086 of 2014, upholding the conclusion that the seat of arbitration is in India, overruling the conclusion that English courts would have concurrent jurisdiction, and restoring the anti-suit injunction. The parties were directed to proceed to arbitration.