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2014 (5) TMI 1208 - SC - Indian LawsValidity of Final Partial Award - rejection of arbitrability of the claims made by the Petitioner in respect of Royalties, Cess, Service Tax and CAG Audit - Section 34 of the Arbitration and Conciliation Act, 1996 - whether Part I of the Arbitration Act, 1996 would be applicable to the arbitration agreement irrespective of the fact that the seat of arbitration is outside India? - HELD THAT - The parties are agreed and it is also evident from the Final Partial Consent Award dated 14th September, 2011 that the juridical seat (or legal place) of arbitration for the purposes of the arbitration initiated under the Claimants' Notice of Arbitration dated 16th December, 2010 shall be London, England. The parties are also agreed that hearings of the Notice of Arbitration may take place at Paris, France, Singapore or any other location the Tribunal considers may be convenient. It is also agreed by the parties that the terms and conditions of the arbitration agreement in Article 33 of the PSCs shall remain in full force and effect and be applicable to the arbitration proceedings. Article 33 makes very detailed provision with regard to the resolution of disputes through arbitration. The two Articles do not overlap-one (Article 32) deals with the proper law of the contract, the other (Article 33) deals with ADR, i.e. consultations between the parties; conciliation; reference to a sole expert and ultimately arbitration. Under Article 33, at first efforts should be made by the parties to settle the disputes among themselves (33.1). If these efforts fail, the parties by agreement shall refer the dispute to a sole expert (33.2). The provision with regard to constitution of the arbitral tribunal provides that the arbitral tribunal shall consist of three arbitrators (33.4). This article also provides that each party shall appoint one arbitrator. The arbitrators appointed by the parties shall appoint the third arbitrator. In case, the procedure Under Article 33.4 fails, the aggrieved party can approach the Permanent Court of Arbitration at Hague for appointment of an arbitrator (33.5) - the Permanent Court of Arbitration at Hague can be approached for the appointment of the arbitrator, in case of default by any of the parties. This is a strong indication that applicability of Arbitration Act, 1996 was excluded by the parties by consensus. Further, the arbitration proceedings are to be conducted in accordance with the UNCITRAL Rules, 1976 (33.9). It is specifically provided that the right to arbitrate disputes and claims under this contract shall survive the termination of this contract (33.10). The conclusion reached by the High Court would lead to the chaotic situation where the parties would be left rushing between India and England for redressal of their grievances. The provisions of Part I of the Arbitration Act 1996 (Indian) are necessarily excluded; being wholly inconsistent with the arbitration agreement which provides that arbitration agreement shall be governed by English law. Thus the remedy of the Respondent to challenge any award rendered in the arbitration proceedings would lie under the relevant provisions contained in Arbitration Act, 1996 of England and Wales. Whether or not such an application would now be entertained by the courts in England is not for us to examine, it would have to be examined by the Court of Competent Jurisdiction in England. Public Policy - HELD THAT - The basis for filing the petition Under Section 34 is that the Appellants are bound to obey the Laws of the country. The Appellants have nowhere claimed to be exempted from the Laws of India. They claim that the Government of India, party to the Contract, i.e., PSC has failed to seek and obtain exemption as stipulated in the contract. Whether or not the claim has substance is surely an arbitral matter. It is not the case of the Appellants that they are not bound by the Laws of India, relating to the performance of the contractual obligations under the PSCs. It is not possible to sustain the conclusion reached by the High Court. The arbitration agreement can not be jettisoned on the plea that award, if made against the Government of India, would violate Public Policy of India. Merely because the Arbitral Tribunal has held that claims are arbitral does not mean that the claims have been accepted and an award adverse to India has been given. We, therefore, have no hesitation in rejecting the submission made by Mr. Ganguly. For the same reasons, we are unable to sustain the conclusions reached by the High Court of Delhi. The principle of severability of the arbitration agreement from the substantive contract is indeed statutorily recognized by Section 16 of the Indian Arbitration Act, 1996 - A bare perusal of the section would show that the arbitration agreement is independent of the other terms of the contract. Further, even if the contract is declared null and void, it would not lead to the foregone conclusion that the arbitration clause in invalid. The conclusions reached by the Delhi High Court that reference to laws of England is only confined to the procedural aspects of the conduct of the arbitration reference, cannot be approved. The petition filed by Respondents Under Section 34 of the Arbitration Act, 1996 in the Delhi High Court is not maintainable - the conclusion of the High Court that, even though the arbitration agreement would be governed by the laws of England and that juridical seat of arbitration would be in London, Part I of the Arbitration Act would still be applicable as the laws governing the substantive contract are Indian Laws, is set aside - appeal allowed.
Issues Involved:
1. Arbitrability of claims related to royalties, cess, service tax, and CAG audit. 2. Jurisdiction of the Delhi High Court under Section 34 of the Arbitration and Conciliation Act, 1996. 3. Applicability of Part I of the Arbitration Act, 1996, to the arbitration agreement. 4. Public policy considerations in arbitration. Analysis: 1. Arbitrability of Claims: The Union of India raised preliminary objections before the Arbitral Tribunal, arguing that claims related to royalties, cess, service tax, and the CAG audit were not arbitrable. They contended that these claims involved challenges to the validity of the Oilfields (Regulation and Development) Act, 1948, and the powers exercised under it, and such disputes should be referred to specific forums created under the relevant statutes. The Arbitral Tribunal, however, concluded that these claims were arbitrable, a decision that was challenged by the Union of India in the Delhi High Court under Section 34 of the Arbitration Act, 1996. 2. Jurisdiction of the Delhi High Court: The High Court of Delhi held that it had jurisdiction to entertain the petition under Section 34 of the Arbitration Act, 1996, despite the arbitration agreement specifying London as the seat of arbitration and English law as the governing law of the arbitration agreement. The High Court reasoned that the proper law of the contract was Indian law, and therefore, Indian public policy considerations could not be excluded. 3. Applicability of Part I of the Arbitration Act, 1996: The Supreme Court analyzed whether Part I of the Arbitration Act, 1996, was applicable to the arbitration agreement. The Court noted that Articles 32.1 and 32.2 of the PSC dealt with the proper law of the contract, which was Indian law, while Article 33.12 specified that the arbitration agreement would be governed by the laws of England. The Court concluded that the parties had consciously excluded the applicability of Part I of the Arbitration Act, 1996, by agreeing that the juridical seat of arbitration would be London and that the arbitration agreement would be governed by English law. 4. Public Policy Considerations: The Union of India argued that the issues involved related to public policy and, therefore, Part I of the Arbitration Act, 1996, could not be excluded. The Supreme Court rejected this argument, stating that the applicability of Part I of the Arbitration Act, 1996, is not dependent on the nature of the challenge to the award. The Court emphasized that the arbitration agreement is a separate contract distinct from the substantive contract and that the parties had agreed to be governed by English law for the arbitration agreement. Conclusion: The Supreme Court held that the petition filed by the Union of India under Section 34 of the Arbitration Act, 1996, in the Delhi High Court was not maintainable. The Court set aside the High Court's conclusion that Part I of the Arbitration Act, 1996, would still be applicable despite the arbitration agreement being governed by English law and the juridical seat being in London. The Court clarified that any challenge to the final award on the grounds of public policy could be resisted in India, but the remedy against the award would have to be sought in England, where the juridical seat is located. The appeal was allowed, and the judgment of the High Court was set aside.
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