2015 (3) TMI 460 - SC - Indian Laws

Arbitration clause - territorial criterion / principle - Scope of Arbitration Act, 1996 - Performance of the agreement - English Arbitration Law was made applicable - Maintainability of appeal against the Foreign Awards - Part I of the Arbitration and Conciliation Act, 1996 Act is applicable to arbitrations held outside India unless the parties have either expressly or impliedly excluded the provisions of the Act- Implied Exclusion - Held that - In the present case, the agreement stipulates that the contract is to be governed and construed according to the English law. This occurs in the arbitration clause. Mr. Vishwanathan, learned senior counsel, would submit that this part has to be interpreted as a part of curial law and not as a proper law or substantive law . It is his submission that it cannot be equated with the seat of arbitration. As we perceive, it forms as a part of the arbitration clause. There is ample indication through various phrases like arbitration in London to apply , arbitrators are to be the members of the London Arbitration Association and the contract to be governed and construed according to English Law . It is worth noting that there is no other stipulation relating to the applicability of any law to the agreement. There is no other clause anywhere in the contract. That apart, it is also postulated that if the dispute is for an amount less that US 50000 then, the arbitration should be conducted in accordance with small claims procedure of the London Maritime Arbitration Association. When the aforesaid stipulations are read and appreciated in the contextual perspective, the presumed intention of the parties is clear as crystal that the juridical seat of arbitration would be London. On the basis of principles lay down in case of Cargill International 1997 (11) TMI 515 - ROYAL COURTS OF JUSTICE ,it is vivid that the intended effect is to have the seat of arbitration at London. The commercial background, the context of the contract and the circumstances of the parties and in the background in which the contract was entered into, irresistibly lead in that direction. We are not impressed by the submission that by such interpretation it will put the respondent in an advantageous position. Therefore, we think it would be appropriate to interpret the clause that it is a proper clause or substantial clause and not a curial or a procedural one by which the arbitration proceedings are to be conducted and hence, we are disposed to think that the seat of arbitration will be at London. Having said that the implied exclusion principle stated in Bhatia International 2002 (3) TMI 824 - SUPREME COURT OF INDIA would be applicable, regard being had to the clause in the agreement, there is no need to dwell upon the contention raised pertaining to the addendum, for any interpretation placed on the said document would not make any difference to the ultimate conclusion that we have already arrived at. Before parting with the case, it is obligatory on our part to state that the Division Bench of the High Court has allowed the petition on the foundation that the Bharat Aluminium Co. 2012 (9) TMI 912 - SUPREME COURT case would govern the field and, therefore, the court below had no jurisdiction is not correct. But as has been analysed and discussed by us, even applying the principles laid down in Bhatia International 2002 (3) TMI 824 - SUPREME COURT OF INDIA and scanning the anatomy of the arbitration clause, we have arrived at the conclusion that the courts in India will not have jurisdiction as there is implied exclusion. Consequently, for different reasons, we concur with the conclusion arrived at by the High Court and accordingly, the appeal, being sans merit, stands dismissed. - Decided against the appellant.

Summary

Issues Involved:
1. Jurisdiction of Indian courts under Section 9 of the Arbitration and Conciliation Act, 1996.
2. Applicability of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (BALCO) and Bhatia International v. Bulk Trading S.A. precedents.
3. Interpretation of the arbitration clause regarding the governing law and seat of arbitration.

Detailed Analysis:

1. Jurisdiction of Indian Courts under Section 9 of the Arbitration and Conciliation Act, 1996:
The primary issue was whether the High Court was justified in setting aside the order of the Additional District Judge, Ernakulam, which directed the first respondent to furnish security or show cause and conditionally attached the cargo. This was challenged on the grounds that Section 9 of the Act is limited to arbitrations in India and does not apply to arbitrations conducted outside India.

2. Applicability of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (BALCO) and Bhatia International v. Bulk Trading S.A. precedents:
The High Court ruled that the principles laid down in BALCO, which restrict the applicability of Section 9 to arbitrations seated in India, were declaratory in nature and thus applicable retrospectively. However, the Supreme Court clarified that the BALCO judgment applies prospectively to arbitration agreements executed after September 6, 2012. Since the agreement in question was executed before this date, the principles of Bhatia International, which allows for the application of Part I of the Act to international commercial arbitrations unless expressly excluded, were applicable.

3. Interpretation of the Arbitration Clause Regarding the Governing Law and Seat of Arbitration:
The arbitration clause specified that the contract is governed by English law and disputes should be arbitrated in London. The Supreme Court analyzed whether this clause impliedly excluded the applicability of Part I of the Act. The Court referred to various precedents, including Bhatia International, Venture Global Engg., and Reliance Industries Ltd., to determine the intention of the parties regarding the exclusion of Part I.

The arbitration clause in the agreement stated: "This contract is to be governed and construed according to English Law...arbitration in London to apply." The Court concluded that the use of such phrases indicated the parties' intention to have the juridical seat of arbitration in London, thus excluding the applicability of Part I of the Act. The Court emphasized that the interpretation must consider the overall commercial purpose and context of the contract.

Conclusion:
The Supreme Court held that the High Court was incorrect in applying BALCO retrospectively. However, upon analyzing the arbitration clause and the principles laid down in Bhatia International, the Court concluded that the Indian courts lacked jurisdiction as there was an implied exclusion of Part I of the Act. The appeal was dismissed, but no costs were imposed.