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TMI Blog2008 (1) TMI 829X X X X Extracts X X X X X X X X Extracts X X X X ..... dent No.2 herein in which both the appellant and respondent No.1 have 50 per cent equity shareholding. Another agreement was also executed between the parties on the same day being the Shareholders Agreement which provides that disputes have to be resolved amicably between the parties and failing such resolution, the disputes are to be referred to arbitration. Section 11.05 of the SHA provides for certain terms and conditions as regards the resolution of the disputes. In February, 2005, disputes arose between the parties. Respondent No.1 alleged that the appellant had committed an event of default under the SHA owing to several venture companies becoming insolvent and they had exercised its option to purchase the appellant-companys shares in SVES at its book value. On 25.07.2005, respondent No.1 filed a request for arbitration with the London Court of International Arbitration which appointed Mr. Paul B Hannon as sole arbitrator on 10.9.2005. The sole Arbitrator on 3.4.2006 passed an award directing the appellant VGE to transfer the shares to respondent No.1. On 14.4.2006, respondent No.1 filed a petition to recognize and enforce the award before the United States District Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nugopal learned senior counsel appearing for the appellant has raised the following contentions: (i) The claim that Part I of the Arbitration and Conciliation Act, 1996 applies to foreign awards is covered by the judgment of this Court in Bhatia International vs. Bulk Trading S.A. & Anr., (2002) 4 SCC 105. ii) The first respondent - Satyam Computer Services Ltd. could not have pursued the enforcement proceedings in the District Court in Michigan, USA in the teeth of the injunction granted by the Courts in India which also, on the basis of the Comity of Courts should have been respected by the District Court in Michigan. iii) The overriding Section 11.5 (c) of the SHA would exclude respondent No.1- Satyam Computer Services Ltd. approaching the US Court in regard to the enforcement of the Award. 6) On the other hand, Mr. R.F. Nariman, learned senior counsel, appearing for the first respondent, submitted that, (i) In view of Section 44 of the Act and the terms of the agreement, no suit would lie in India to set aside the Award, which is a foreign Award. (ii) No application under Section 34 of the Act would lie to set aside the Award. (iii) In view of the provisions of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional District Judge on 1-2-2000. It was held that the court at Indore (M.P.) had jurisdiction and the application was maintainable. The appellant filed a writ petition before the High Court of Madhya Pradesh, Indore Bench and the same was dismissed by the impugned judgment dated 10-10-2000. Several contentions have been raised on behalf of the appellant, namely, Part I of the Act only applies to arbitrations where the place of arbitration is in India and if the place of arbitration is not in India then Part II of the said Act would apply. Sub-section (2) of Section 2 of the Act makes it clear that the provisions of Part I do not apply where the place of arbitration is not in India. The Court at Indore could not have entertained the application under Section 9 of the Act as Part I did not apply to arbitrations which had taken place outside India. On the other hand, on behalf of respondent No.1, it was submitted that a conjoint reading of the provisions shows that Part I is to be applied to all arbitrations. It was further submitted that unless the parties by their agreement exclude its provisions, Part I would also apply to all International Commercial arbitrations including tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry. The said Act nowhere provides that its provisions are not to apply to international commercial arbitrations which take place in a non-convention country. Admittedly, Part II only applies to arbitrations which take place in a convention country. Mr. Sen fairly admitted that Part II would not apply to an international commercial arbitration which takes place in a non-convention country. He also fairly admitted that there would be countries which are not signatories either to the New York Convention or to the Geneva Convention. It is not possible to accept the submission that the said Act makes no provision for international commercial arbitrations which take place in a non-convention country. 17. Section 1 of the said Act reads as follows: 1. Short title,extent and commencement .(1) This Act may be called the Arbitration and Conciliation Act, 1996. (2) It extends to the whole of India: Provided that Parts I, III and IV shall extend to the State of Jammu and Kashmir only insofar as they relate to international commercial arbitration or, as the case may be, international commercial conciliation. The words mean the entire Act. This shows that the entire Act, including Part I, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislature appears to be to ally (sic allow) parties to provide by agreement that Part I or any provision therein will not apply. Thus in respect of arbitrations which take place outside India even the non-derogable provisions of Part I can be excluded. Such an agreement may be express or implied. Mr. Sen had also submitted that Part II, which deals with enforcement of foreign awards does not contain any provision similar to Section 9 or Section 17. As indicated earlier, Mr. Sen had submitted that this indicated the intention of the legislature not to apply Sections 9 and 17 to arbitrations, like the present, which are taking place in a foreign country. The said Act is one consolidated and integrated Act. General provisions applicable to all arbitrations will not be repeated in all Chapters or Parts. The general provisions will apply to all Chapters or Parts unless the statute expressly states that they are not to apply or where, in respect of a matter, there is a separate provision in a separate Chapter or Part. Part II deals with enforcement of foreign awards. Thus Section 44 (in Chapter I) and Section 53 (in Chapter II) define foreign awards, as being awards covered by arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus such an interpretation has to be preferred to the one adopted by the High Courts of Orissa, Bombay, Madras, Delhi and Calcutta. It will therefore have to be held that the contrary view taken by these High Courts is not good law. 11) Mr. K.K. Venugopal, learned senior counsel, has pointed out that paragraph 14 of the judgment of Bhatia International (supra) sets out four independent reasons for arriving at the conclusion that Part I would apply to foreign Awards that are as follows: i) to hold to the contrary would result in a lacunae as Non-Convention country awards cannot be enforced in India. ii) Section 1(2) expressly extends Part I to the State of Jammu and Kashmir so far as it relates to international commercial arbitration giving rise to an anomaly so far as the rest of India is concerned unless Part I applies to international commercial arbitrations in the other States as well. iii) If the word only is read into Section 2(2), it would then render the sub-section inconsistent with sub- sections (4) and (5) of Section 2 which apply Part I to all arbitrations, meaning thereby, including foreign international arbitrations. iv) As otherwise, no relief can be sought i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply to all foreign awards. This exception which is carved out, based on agreement of the parties. By omitting to provide that Part I will not apply to international commercial arbitrations which take place outside India the effect would be that Part I would also apply to international commercial arbitrations held out of India. But by not specifically providing that the provisions of Part I apply to international commercial arbitrations held out of India, the intention of the legislature appears to be to allow parties to provide by agreement that Part I or any provision therein will not apply. Thus in respect of arbitrations which take place outside India even the non-derogable provisions of Part I can be excluded. Such an agreement may be express or implied. He further pointed out the very fact that the judgment holds that it would be open to the parties to exclude the application of the provisions of Part I by express or implied agreement, would mean that otherwise the whole of Part I would apply. In any event, according to him, to apply Section 34 to foreign international awards would not be inconsistent with Section 48 of the Act, or any other provision of Part II as a situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers or Parts of the Act. Section 2(5) which falls in Part I, specifies that this part shall apply to all arbitrations and to all proceedings relating thereto. It is useful to refer Section 45 which is in part II of the Act which starts with non obstante clause namely, Notwithstanding anything contained in Part I or in Code of Civil Procedure Section 52 in Chapter I of Part II of the Act provides that Chapter II of this Part shall not apply in relation to foreign awards to which this Chapter applies. As rightly pointed out, the said section does not exclude the applicability of Part I of the Act to such awards. 15) Part II of the Act speaks about the enforcement of certain foreign awards. Section 48 speaks about conditions for enforcement of foreign awards. Section 48(1) (e) read with Section 48(3) of the Act specify that an action to set aside the Award would lie to the competent authority. Mr. Nariman, after taking us through the relevant provisions of Chapter I Part II submitted that Section 48(1)(e) read with Section 48(3) of the Act specifies that an action to set aside a foreign award within the meaning of Section 44 of the Act would lie to the competent authority of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtent permitted by the provisions of Part-I. It is also clear that even in the case of international commercial arbitrations held out of India provisions of Part-I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. We are also of the view that such an interpretation does not lead to any conflict between any of the provisions of the Act and there is no lacuna as such. The matter, therefore, is concluded by the three-Judge Bench decision in Bhatia International (supra). 18) Learned senior counsel for the respondent based on para 26 submitted that in the case of foreign award which was passed outside India is not enforceable in India by invoking the provisions of the Act or the CPC. However, after critical analysis of para 26, we are unable to accept the argument of learned senior counsel for the respondent. Paras 26 and 27 start by dealing with the arguments of Mr. Sen who argued that Part I is not applicable to foreign awards. It is only in the sentence starting at the bottom of para 26 that the phrase it must immediately be clarified that the finding of the Court is rendered. That finding is to the effect that an express or imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to the transferee, which would involve the following steps being taken under the Companies Act and the rules and regulations thereunder, as well as the Foreign Exchange Management Act, 1999 (FEMA): i) Obtaining a Share Transfer Form 7-B and having it endorsed by the prescribed authority under the Companies Act, 1956 in compliance with Section 108. ii) Execution of Share Transfer Form 7-B by the appellant and respondent. iii) Payment of stamp duty on the transfer of shares. iv) Sending duly executed Share Transfer Form 7-B and the share Certificates to SVES, the respondent No.2 herein under Section 110 of Companies Act. v) Respondent No.2 approving the transfer of shares and causing alternation in its Register of Members under Section 111A. vi) Compliance with Rules and Regulations, completing prescribed forms, giving relevant undertakings in accordance with Indian foreign exchange laws and Regulations such as the Foreign Exchange Management Act, 1999 and its notifications, given that the transaction involved transfer of shares from a non-resident to a resident. By pointing out, he submitted that respondent No.1, in enforcing the Award in the US District Court instead of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is an answer to the main issue raised, we are unable to accept the contra view taken in various decisions relied on by Mr. Nariman. Though in Bhatia International (supra) the issue relates to filing a petition under Section 9 of the Act for interim orders the ultimate conclusion that Part I would apply even for foreign awards is an answer to the main issue raised in this case. 23) Mr. K.K. Venugopal, learned senior counsel, next contended that the overriding section 11.05 (c) of the Shareholders Agreement would exclude respondent No.1 approaching the US Courts in regard to enforcement of the Award. Section 11.05 (b) and (c) of the Shareholders Agreement between the parties read as follows: (b) This Agreement shall be construed in accordance with and governed by the laws of the State of Michigan, United States, without regard to the conflicts of law rules of such jurisdiction. Disputes between the parties that cannot be resolved via negotiations shall be submitted for final, binding arbitration to the London Court of Arbitration. (c) Notwithstanding anything to the contrary in this agreement, the Shareholders shall at all times act in accordance with the Companies Act and other a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strict Court in Michigan, USA in the teeth of the injunction granted by the Courts in India which also, on the basis of the Comity of Courts, should have been respected by the District Courts in Michigan, USA. Elaborating the same, he further submitted that the injunction of the trial court restraining the respondents from seeking or effecting the transfer of shares either under the terms of the Award or otherwise was in force between 15.06.2006 and 27.06.2006. The injunction of the High Court in the following terms appellant (i.e. respondent No.1) shall not effect the transfer of shares of the respondents pending further orders was in effect from 27.06.2006 till 28.12.2006. The judgment of the US District Court was on 13.07.2006 and 31.07.2006 when the Award was directed to be enforced as sought by respondent No.1, notwithstanding the injunction to the effect that the appellant (respondent No.1 herein) shall not effect the transfer of shares of the respondents pending further orders. The first respondent pursued his enforcement suit in Michigan District Courts to have a decree passed directing VGE shall deliver to Satyam or its designee, share certificates in a form suitable f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be construed to mean that Indian law is a substantive law of the contract or that Indian law would govern the dispute resolution clause in Section 11.05(b) are not acceptable. As rightly pointed out and observed earlier, the non obstante clause would over ride the entirety of the agreement including sub-section (b) which deals with the settlement of the dispute by arbitration and, therefore, section 3 would apply to the enforcement of the award. In such event, necessarily enforcement has to be in India as declared by the very section which over rides every other section. 28) The above-mentioned relevant aspects, the legal position as set out in three-Judge Bench decision in Bhatia International (supra), specific clause in the Shareholders Agreement (SHA), conduct of the parties have not been properly adverted to and considered by the trial Court as well as the High Court. Accordingly, both the orders passed by the City Civil Court and of the High Court are set aside. 29) In terms of the decision in Bhatia International (supra), we hold that Part I of the Act is applicable to the Award in question even though it is a foreign Award. We have not expressed anything on the merits of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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