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TMI Blog1994 (1) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... Enforcement) Act, 1961 (hereinafter referred to as 'the Foreign Awards Act'). 3.Before we deal with the applications, it would be useful to state a few facts relevant for purposes of the decisions of these appeals. 4.The suit out of which the present appeals arise was filed by the plaintiff (hereinafter referred to as the 'borrower') before the Subordinate Judge, Cuttack for various reliefs against defendants 1 to 3 (hereinafter referred to as the 'suppliers'); defendants 4 to 11 (hereinafter referred to as the 'lenders'); and defendant 12, Industrial Development Bank of India, (hereinafter referred to as the 'guarantor'). Defendant 13 in the suit is M/s Indian Metals Ferro Alloys Ltd., (in short 'IMFA'). 5.IMFA issued a global tender for setting up a captive power plant, viz., a coal-fired power plant in Choudwar, Orissa. The tender indicated that credit by the suppliers will be preferred. The suppliers submitted their tenders in this regard. Since the tender indicated that suppliers' credit for the entire project would be preferred, the suppliers approached defendant 4 (one of the lenders) to finance the project and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded: All disputes arising from the provisions of this agreement or its performance shall be finally settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with these rules. Arbitration shall take place in Stockholm and be conducted in the English language. The award of the arbitral tribunal is final and obligatory for the parties without any right for a further appeal or contestation of its fulfillment. The borrower hereby expressly submits to the jurisdiction of the above mentioned arbitration tribunal. 8.The credit agreements also provided that the borrower shall furnish guarantees in favour of the lenders as security for the loans covering 100% of each of the loans plus interest, costs and fees payable under the credit agreements. As quoted above, the agreements also contained an arbitration clause which contemplates disputes arising from the agreements to be finally settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with these rules. The arbitration is provided to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defendant 12 from making payments to defendant 4. The letter dated May 31, 1991 reads thus: SVENSKA HANDELSBANKEN Stockholm, Sweden May 31, 1991 BY COURIER Mr Rajen Mahapatra Advocate, 7-A/3, Girdhar Apartments, Feroz Shah Road, New Delhi 110 001, India. Dear Sir, Re: Order of injunction' dated April 25, 1991 the learned Subordinate Judge, 1st Court, Cuttack, Orissa in Misc. Case No. 143 of 1991 arising out of T.S. No. 208 of 1991. We have received two letters from you, both dated April 27, 199 1, in respect of the above matter. The first was a short covering letter and the second was enclosed with it. The second quotes the terms of an injunction apparently granted in the above matter. Enclosed with it was a copy of what appears to be the notes of the Honorable Judge. We have never received anything further, either from you or from the Court. This is puzzling. What is even more puzzling is how your clients could have made such an application, and how it could have been granted, when the Honorable Court quite clearly has no jurisdiction over us as a Swedish Corporation with no presence in India, or over any dispute between us and your client. Your ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nally settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with these rules. The arbitration agreement was agreed to be governed by Swedish Law. 13.It appears that an application dated June 28, 1991 was filed by defendant 4 for vacating the interim injunction granted in Misc. Case No. 143 of 1991 and it was this application with which the aforesaid power of attorney dated June 28, 1991, specifically mentioning Misc. Case No. 143 of 1991, was filed in court. Written arguments were also filed on July 31, 1991 opposing the continuation of the interim injunction. 14.It also appears that on the same date i.e. July 3 1, 1991 an application was filed purporting to be on behalf of defendants 4 to 11 (lenders), without any power of attorney from defendants 5 to 11, stating inter alia that these defendants are foreign banks and are residing outside the country, therefore six weeks time may kindly be granted enabling these defendants to file their written statement . It is not clear from the application which advocate had signed it. 15.It appears that another application dated Aug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted to the jurisdiction of the Indian Courts or to have entered into the merits of the dispute in Suit No. 208 of 1991 because D-4 wanted to reserve to itself the option of compelling plaintiff to arbitrate the dispute, as agreed. D-4 in the presence and with the help of Mr Misra prepared an affidavit by Ms Helene Melin, an officer of D-4, contesting the jurisdiction of the Indian Courts and relying upon the arbitration provisions contained in the credit agreements. On behalf of D-4, M/s Clifford Chance, by their letter of instructions dated June 19, 1991 expressly instructed Mr Misra to take no steps in the action nor to do anything else which might be construed as a submission to the jurisdiction of the Indian Courts in respect of this matter. This letter was personally handed over to Mr Misra during the course of the meetings held in London. In the presence of two officers of D-4 and their said English Solicitors Mr Misra read the letter and accepted these instructions. He assured his clients D-4 that he would act in accordance with these very clear and explicit instructions. A copy of the letter dated June 19, 1991 is annexed as Annexure 'A'. (ii)The Vakal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Mr Misra to attend the court hearing on August 14, and also held meetings with Mr Misra in Delhi and Cuttack on 13, 14, and 15 August. During those meetings it was repeatedly stressed to Mr Misra how important it was for D-4 to retain its ability to insist on arbitration as agreed by the parties in writing, and accordingly that no step in the action be taken on behalf of D-4. Mr Misra made no mention of the impugned application. (vi) D-4 only became aware of the filing of the 'application' dated July 31, 1991 at the end of August 1991, and immediately by their Solicitor's letter dated September 2, 1991 called upon Mr Misra to explain. It is noteworthy, and very surprising that no mention was made of this 'application' during the series of meetings held in India in mid- August referred to above, or in correspondence or later telephone conversation. (vii)By his letter dated September 8, 1991, Mr Misra informed D4's English Solicitors that the filing of an application for adjournment for the purposes of filing a written statement does not amount to a step in the action. A copy of that letter is annexed as Annexure 'C'. No mention w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore could not be a step in the action. (d) It will be observed, further, that the Vakalatnama as filed is granted by D-4 only. D75 to 11 are not parties to that Vakalatnama. D-5 to 11 had not been properly served in any of these proceedings in July and August 1991 when the impugned applications were filed. They had not issued any Vakalatnama nor were any Vakalatnamas either given to Mr Misra or filed on behalf of D-5 to 11, and for this reason, also, the impugned applications are void and of no effect. (e) In all these circumstances it is further or alternatively submitted that the Hon'ble Court erred on both occasions in granting time on the basis of each of the two impugned applications. It is submitted that the Hon'ble Court had no power to act on applications brought by persons without authority and/or in the wrong proceedings and/or on behalf of the wrong parties and/or in response to void applications, and accordingly the Hon'ble Court made a serious mistake. Along with the affidavit all the documents mentioned in it were also filed. 19.The trial court, however, dismissed the applications for stay filed by defendant 4 and defendants 5 to 11 by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of defendants 1 to 3 (suppliers), second on behalf of defendant 4 (one of the lenders) and third on behalf of defendants 5 to II (other lenders). The High Court by its impugned order dated June 17, 1993 dismissed all the three revision petitions. It took the view that conditions (i), (ii), (iii) and (vi) as laid down by this Court in the aforesaid case of Renusagar1 were satisfied in respect of all the defendants. It, however, took the view that so far as condition (v) is concerned it is not satisfied in respect of all the defendants. It held that the agreements for arbitration by different arbitrators one between defendants 1 to 3 and the borrower (plaintiff) and the other between the borrower (plaintiff) and lenders by other set of arbitrators make the agreements inoperative and are not capable of being performed. The High Court, however, again affirmed the finding of the trial court that defendant 4 has not satisfied condition (iv) inasmuch as before filing the application for stay, defendant 4 had taken other steps in the legal proceedings. 26.There was no dispute before us so far as the lenders' applications were concerned that they were governed by Section 3 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trial court as well as in view of the affidavit filed on behalf of defendant 4 of Ms Barbro Margareta Lundberg and the express instructions conveyed to its counsel with the power of attorney dated June 28, 1991 which was specifically limited to the Misc, Case No. 143 of 1991, it limited the act of appearance merely to oppose the application for ad interim injunction operating against defendant 4. It is again clear that the party concerned must put in appearance in the suit before applying for stay under Section 3 of the Foreign Awards Act. At the stage applications purporting to be on behalf of defendants 4 to 11 were filed on July 31, 1991 and August 24, 1991, seeking time to file written statement, no appearance had been filed on behalf of defendants 5 to 11 at all and no appearance had been filed in the suit on behalf of defendant 4. It will again be observed that the Vakalatnama dated June 24, 1991 was specifically given in respect of Misc. Case No. 143 of 1991 and no other court proceedings. No power of attorney was filed on behalf of defendant 4 in the suit at all with either of the two applications seeking time for filing written statement. The applications for seeking time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banken, Kungstradgardsgatan 2, S-106 70 Stockholm, Sweden, opposite party No. 4 in the aforesaid case, do hereby appoint and retain Shri A. Misra, H.P. Rath, P. Panda, G. Rath, B. Das, Advocates to appear for us, in the above case and to conduct and prosecute (or defend) the same and all proceedings that may be taken in respect of any application connected with the same, or any decree or order passed therein including all applications for return of documents or receipt of any moneys that may be payable to us in the said case and also in applications for review, appeals under Orissa High Court Order and in applications for leave to appeal to Supreme Court. Dated ... 1991 Received from the executant(s) satisfied and accepted as I hold no brief for the other side. Advocate Svenska Handelsbanken sd/- sd/- Astor Olsson Lars Kinander Accepted as above Advocate Signatures of the Executants Accepted as above Advocate Accepted as above Advocate 31. It will be noticed that this power of attorney is not in usual terms which normally authorise a counsel to enter into compromise or to ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that one thing is certain that if a suitor countermands his pleader's authority to enter into a compromise or withholds, by express recital in the vakalat, the power to compromise the legal proceeding, the pleader (or, for that matter, the 2 AIR 1930 PC 158 :57 IA 133: 34 CWN 453 3 (1975) 2 SCC 609 advocate) cannot go against such advice and bind the principal, his client. This is as illegal as it is unprofessional . 35. We are thus constrained to reverse the findings of both the trial court as well as the High Court regarding non- satisfaction of condition (iv) as noticed in the case of Renusagar1 by defendant 4. On the other hand we are constrained to hold that no appearance whatsoever was made by defendant 4 so far as the suit is concerned and in fact the instructions were to the contrary so far as the counsel is concerned. He acted contrary to express instructions and defendant 4 cannot be bound by such unauthorised acting by its advocate contrary to the express instructions. Since there was no appearance also on behalf of defendant 4 in the suit no question arose of taking any steps in such proceedings and, therefore, condition (iv) as contemplated in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing performed if left with themselves between the borrower and the suppliers on the one hand and between the borrower and the lenders on the other. The High Court, however, took the view that they have become inoperative as the agreement with the lenders is before one set of arbitrators in proceedings to be held at Stockholm i.e. against the lenders and before other set of arbitrators in proceedings to be held at Paris i.e. against the suppliers, though, the body, which is to conduct the arbitration proceedings is the same. This makes the agreements either invalid, inoperative or incapable of being performed. 39. The above extracts and reasoning of the judgment of the High Court show that each of the three defendants 1 to 3 had satisfied all the requirements of Section 3 of the Foreign Awards Act and each was entitled to have the suit proceedings stayed against them so that the disputes could be resolved only by the foreign arbitration proceedings stipulated by them with the plaintiff in their respective arbitration agreements. 40. The only ground given by the High Court for refusing the stay of the suit against defendants 1 to 3 is as mentioned earlier. The High Court has al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mance shall be finally settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with these rules.Arbitration shall take place in Stockholm and be conducted in the English language. The award of the arbitral tribunal is final and obligatory for the parties without any right for a further appeal or contestation of its fulfillment. The borrower hereby expressly submits to the jurisdiction of the above mentioned arbitration tribunal. 18.03 Notwithstanding the provisions of the foregoing clause, the lender reserves the right to commence proceedings against the borrower in the Courts of India or Sweden or the United Kingdom or the State of New York and the borrower hereby expressly submits to the jurisdiction of such courts. 18.04 The borrower hereby irrevocably appoints the Ambassador of India to Sweden as its process agent to receive service of any proceedings on its behalf. 46. Mr Venugopal submitted that in view of clause 18.03 there is no arbitration clause at all in the contracts governing the lenders as one party alone is bound by such an agreement and the other is not bound b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. 51. When parties agree to have their disputes settled by arbitration it does not mean that both have bound themselves not to go to court to have the disputes settled. At page 163 of Russel on Arbitration, Twentieth Edn. it is stated that a party to a contract to refer disputes to arbitration has a perfect right to bring an action in respect of those disputes, and the court has jurisdiction to try such disputes. Any provision to the contrary would be all ouster of the jurisdiction of the Courts. 52. Lord Macmillan in the House of Lords decision in Heyinan v. Darwins Ltd. 4 pointed out as under: I venture to think that not enough attention has been directed to the true nature and function of an arbitration clause in a contract. It is quite distinct from the other clauses. The other clauses set out the obligations which the parties undertake towards each other hinc inde. But the arbitration clause does not impose on one of the parties an obligation in favour of the other. It embodies the agreement of both parties that, if any dispute arises with regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot institute proceedings in any court against defendant 4. It is clear from a reading of clause 18.02 and clause 18.03 that there will be no parallel proceedings. 55. There is thus no obstacle in the applications filed on behalf of defendant 4 and defendants 5 to II for staying the suit filed by the borrower/plaintiff under the provisions of Section 3 of the Foreign Awards Act. 56. Coming now to the application filed on behalf of defendants 1 to 3 under Section 3 of the Foreign Awards Act, Mr Venugopal submitted a new argument in supporting the conclusion of the courts below. The argument was that so far as defendants 1 to 3 are concerned, Section 3 of the Foreign Awards Act is not applicable in view of the agreement between the borrower and the suppliers as contained in clause. 14 of the contract. He further submitted that since as per clause 14. 1, the contract was to be construed and governed according to the laws of India, the application for stay of suit should be governed by Indian Arbitration Act, 1940 and not by Section 3 of the Foreign Awards Act, which though is an Indian law, yet, in view of the provisions of Section 9(b) of the Foreign Awards Act, this Court sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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