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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 ..... rds (Recognition and 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents also provided: "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 arbitrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck had injuncted 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 August 24, 1991, purporting to be on behalf of defendants 4 to 11, without any power of attorney in favour of the counsel in the suit, was filed again asking for time of eight weeks being granted to defendants 4 to 11 to file their written statement. 16.On or about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lp 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 Vakalatnama issued by D-4 to Mr Misra in the injunction proceedings (Misc. Case No. 143 of 1991) is restricted compared to the normal form. This was done intentionally and was discussed and agreed with Mr Misra at the meetings in London in June 1991. The usual right of substitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was made in this letter of the second 'application' dated August 24, 1991. (viii)The first time D-4 or its English Solicitors became aware of the second 'application' of August 24, 1991 was when it was mentioned in plaintiff's objection filed herein. It came as a complete surpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 its order dated June 23, 1992. 20.At this stage it would be useful to state the facts in relation to an application filed under Section 3 of the Foreign Awards Act on behalf of defendants 1 to 3 (suppliers). 21.It will be noticed that so far as the suppliers are concerned, they never put in any appearance to oppose the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid 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 the Foreign Awards Act for the purpose of stay of the suit as the arbitration was contemplated under the Rules of Conciliation and Arbitration of the International Chamber of Commerce, which was to take place in Stockholm and the parties rights were to be governed by Swedish Law. Therefore, we are dealing first with the question of compliance of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erim 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 were filed contrary to the express instructions given to the counsel appearing on behalf of defendant 4 vide communication dated June 19, 1991 as is clear from paragraphs 1 to 3 thereof which are as under: "1. The instructions at present are to contest only the jurisdiction of the Court in Cuttack over defendants 4 to II in the pending proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected 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 appoint any other counsel on his behalf. The power of attorney is specifically in Misc. Case No. 143 of 1991. Again it contains no power on the counsel to appoint any other counsel on his behalf in the application even. 32. A combined reading of the correspondence as disclosed in the affidavit filed on behalf of defendant 4 shows that no power of attorney has been executed on behalf of defendant 4 in favour of any counsel so far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal". 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 of Renusagarl is fully satisfied by defendant 4 as well as by defendants 5 to 36. It will be noticed that the only other finding of the High Court against defendant 4 for declining stay of the suit is common with other defendants appellants before us, namely that they have not satisfied condition (v) as spelt out in the aforesaid case of Renusagarl. 37. The High Court at the end of paragraph 8 of its judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 also pointed out that since the plaint does not make severable allegations against different defendants who are parties to different contracts, with different arbitration agreements and the allegations made by the plaintiff against different defendants are such that they cannot be separated from each other and since the arbitrations between the plaintiff and different defendants may have to go to different arbitrator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. 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 by such agreement, the agreement is not an arbitration agreement. It was submitted that inasmuch as clause 18.02 of the contract declares "the borrower hereby expressly submits to the jurisdiction of the above mentioned arbitration tribunal" but clause 18.03 through a non-obstante clause relieves the lenders of their duty to have the disputes settled through arbitration and authorises the lenders to commence pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch 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 their own constitution." 53. It may be that even after entering into an arbitration clause any party may institute legal proceedings. It is for the other party to seek stay of the suit by showing the arbitration clause and satisfying the terms of the provisions of law empowering the court to stay the suit. Clause 18.03, therefore, merely states what is otherwise the legal position. The object of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 should take a view that only Section 34 of the Arbitration Act, 1940 would apply to the present suit in view of clause 14.1 of the contract. 57. Learned counsel appearing on behalf of the suppliers/defendants 1 to 3 submitted that this point should not be allowed to be raised for the first time at this stage and, at any rate, Section 9(b) of the Foreign Awards Act applies only at the stage 'after the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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