9911796707
TMI Blog1987 (1) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... rd rendered by an Umpire in arbitration proceedings held in London but governed by the Indian Arbitration Act, 194.0, which was the law of choice of the parties as per the arbitration clause contained in the drilling contract entered into between the parties. The Western Company has moved the USA Court for a judgment in terms of the award not withstanding the fact that: 1) ONGC had already initiated proceedings in an Indian Court to set aside the award and the said proceeding was as yet pending in the Indian Court. 2) The said award was not as yet enforceable in India as a domestic award inasmuch as a Judgment in accordance with the Indian law had yet to be procured in an Indian Court, by the Western Company. The events culminating in the order under appeal may be briefly and broadly recounted. The appellant, ONGC and the Respondent Western Company, had entered into a drilling contract. The contract provided for any differences arising out of the agreement being referred to arbitration. The arbitration proceedings were to be governed by the Indian Arbitration Act 1940 read with the relevant rules. A dispute had arisen between the parties. It was referred to two Arbitrators ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 33 of the Indian Arbitration Act 1940 for setting aside the awards rendered by the Umpire. Inter alia the challenge was rooted in the following. reasoning. While as per the Indian Arbitration Act 1940 which admittedly governed the arbitration proceedings the Umpire would come on the scene only provided and only when the Arbitrators gave him notice in writing that they were unable to agree, and the Umpire would enter upon the reference in lieu of the Arbitrators only subsequent thereto, in the present case the Umpire had neither held any proceedings nor had afforded any opportunity of being heard to the ONGC after entering upon the reference. The appellant, ONGC, also prayed for an interim order restraining the Western Company from proceeding further with the action instituted in the U.S. Court. The learned Single Judge granted an ex-parte interim restraint order on January 20, 1986 but vacated the same after hearing the parties by his impugned order giving rise to the present appeal by Special Leave. 1. Interim Order No. 11 of 1986 passed on April 3, 1986 in Arbitration Petition No. 10 of 1986. In order to confine the dialogue strictly within the brackets of the scope of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt. In considering the question as regards the proceeding initiated by the Western Company in the US Court, there is no occasion to invoke the provisions of the aforesaid Act. The provisions of the said Act can be invoked only when an award which is not a domestic award in India is sought to be enforced in India. Such is not the situation in the present case. We are therefore not at all concerned with the provisions of the said Act. 4) We are not directly concerned with the law governing the enforcement of the foreign award in an USA Court. We would be undertaking an inappropriate exercise in being drawn into a discussion in depth as regards the law governing enforcement of foreign awards in USA, the procedure to be followed, or as to the interpretation of the relevant provisions as made by the US Court. So also it would be inappropriate to speculate on the view that is likely to be taken by the American Court or to anticipate its interpretation or its verdict in regard to the relevant matters at that end. The order under appeal may now be subjected to scrutiny. The High Court has vacated the interim order granted by it earlier on the following grounds: 1) That it was open to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n dispute that the arbitration clause contained in the contract which has given rise to the disputes and differences between the parties in terms provides that: The arbitration proceedings shall be held in accordance with the provisions of the Indian Arbitration Act, 1940 and the rules made thereunder as amended from time to time. (Vide clause 14 of the Contract) 2) There is also an agreement between the parties that the validity and interpretation thereof shall be governed by the laws of India (vide clause 18 of the contract) 3) Under the Indian Law, having regard to the scheme of the Arbitration Act of 1940, an arbitral award as such is not enforceable or executable. It is only after the award is filed in the Indian Court and is made a rule of the Court by virtue of a judgment and decree in terms of the award that life in the sense of enforceability is infused in the lifeless award. (Vide Sections 141 and 172of the Arbitration Act) The situation which emerges is somewhat an incongrous one. The arbitral award rendered by the Umpire may itself be set-aside and become non-existant if the ONGC is able to Successfully assail it in the petition under section 30/33 for sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the American Court would have no jurisdiction in this behalf. (3) The enforceability of the award must be determined in the context of the Indian Law as the arbitration proceedings are admittedly subject to the Indian Law and are governed by the Indian Arbitration Act of 1940. (4) If the award in question is permitted to be enforced in USA without its being affirmed by a Court in India or a USA Court, it would not be in conformity with law, justice or equity. There is considerable force in the argument advanced in the context of the possibility of the award rendered by the Umpire being set aside by the Indian Court. In that event an extremely anomalous situation would arise inasmuch as the successful party (Western Company) may well have recovered the amount awarded as per the award from the assets of the losing party in the USA after procuring a judgment in terms of the award from USA Court. It would result in an irreversible damage being done to the losing party (ONGC) for the Court in the USA would have enforced a non-existent award under which nothing could have been recovered. It would result in the valuable Court time of the USA Court being invested in a non-issue an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he award in the New York Court under the American Law. Will it not amount to an improper use of the forum in America in violation of the stipulation to be governed by the Indian law which by necessary implication means a stipulation to exclude the USA Court to seek an affirmation and to seek it only under the Indian Arbitration Act from an Indian Court? If the restraint order is not granted, serious prejudice would be occasioned and a party violating the very arbitration clause on the basis of which the award has come into existence will have secured an order enforcing the order from a foreign court in violation of that very clause. When this aspect was pointed out to the learned counsel for the Western Company in the context of another facet of this very question namely the possibility of the Indian Court taking one view and the American 1. 2(e) Court means a Civil Court having jurisdiction to decide the questions forming the subject-matter of the reference if the same had been the subject-matter of suit, but does not, except for the purpose of arbitration proceedings under section 21 include a Small Cause Court. Court taking a contrary view, counsel stated that though t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ONGC, would be helpless to recover the amount notwithstanding the fact that the award has been set aside by the Indian Court, for, the amount would then not be recoverable under the American law in the American Court, the latter having held the award to be valid. The questions posed to the counsel for the Western Company in this behalf and his answers relevant to the material extent, in his own words, along with the questions deserve to be quoted: QUESTIONS ANSWERS It is an award under Indian law Yes: this is precisely what regardless of the fact that it the convention contemplates was rendered by the umpire while The N.Y.proceedings is not sitting in London.Since law in a parallel proceeding but India does not make it enforcean independent concurrent able on mere filing of the award one permissible under US but only on it being made a rule Law and under Art. 1 of the (subject to its being correctedN.Y. Convention acceded to varied-annulled or modified) by the U.S. the N.Y. Court should a parallel proceeding be will take into consideratipermitted for its enforcement on the pendency of the prooutside India before it has becceedings in India; but it ome enforceable in India? Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the American Court, the matter would be decided under a law other than the Indian Law, by the American Court. Admittedly, Western Company has prayed for confirmation of the award. The American Court may still proceed to confirm the award. And in doing so the American Court would take into account the American law and not the Indian law or the Indian Arbitration Act of 1940. And the American Court would be doing so at the behest and the instance of Western Company which has in terms agreed that the arbitration proceedings. will be governed by the Indian Arbitration Act of 1940. Not only the matter will be decided by a Court other than the Court agreed upon between the parties but it will be decided by a Court under a law other than the law agreed upon. Should or should not such an unaesthetic situation be foreclosed? The last submission is also quite impressive. If the Western Company is right in the posture assumed by it in this Court at the time of the hearing that the American Court has no jurisdiction to confirm the award in view of the New York Convention is correct, the resultant position would be this: The award rendered by the Umpire, the validity of which is not tested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e we will briefly indicate the questions which were debated in the context of the Convention since considerable debate has centred around the interpretation and scope of some of the articles of the Convention. Article V(1)(e) provides that recognition and enforcement of the award will be refused if the award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which or under the law of which that award was made. It was contended on behalf of Western Company that the legislative history of the New York Convention discloses that under the Geneva Protocol--given effect to by the Arbitration (Protocol and Convention) Act, 1937--it was provided that an award would not be enforced if it was not considered as 'final' and it was not 'final' if it is proved that any proceedings for the purpose of contesting the validity of the award were pending. This provision aroused a great deal of controversy as it was felt that the requirement of the Geneva Convention that the award has become final in the country in which it has been made was considered to be burdensome and inadequate and that the New York Convention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as foreign award will have thus to be tested with reference to the key words contained in Article V(1)(e) of the Convention and the question will have to be answered whether the award has become binding on the parties or has not yet become binding on the parties. It is evident that the test has to be applied in the context of the law of the country governing the arbitration proceedings or the country under the law of which the award was made. This conclusion is reinforced by the views expressed by Albert Jan Van den Berg in his treatise--The New York Arbitration Convention of 1958--Towards a Uniform Judicial Interpretation at page 341 as under: Most of the authors are also of the opinion that the moment at which an award becomes binding within the meaning of Article V(1)(e) is to be determined under the law governing the award. However, they also differ at which moment this should be assumed under that law.' He has also referred to a judgment rendered by the Italian Supreme Court which supports this proposition. Says the author: Furthermore, whilst declaring that the Convention has eliminated the double Exequatur , the Italian Supreme Court held that the Court of Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The Court rejected the defence, reasoning that the legal effect of the award was not to be determined under Italian law, according to which an award becomes binding only upon an enforcement order of the Pretore, but should be assessed under English law according to which the leave for enforcement is not necessary in order to confer binding force upon the award. Another example is the Court of First Instance of Strasbourg before which the French respondent had asserted that the enforcement of an award made in F.R. Germany could not be granted because a leave for enforcement had not been issued by a German Court. Whilst observing that the Convention has abolished the double exequatur , the Court reasoned that the award had become binding when it had been deposited with the German Court. The latter is indeed a prerequisite for the binding force (verbhindliehkeit) of an award under German law. The binding force of an award under German law was also considered by the Court of Appeal of Basle. The Court referred to the Report of the Swiss Federal Council (Conseil federal) accompanying the implementation of the Convention in Switzerland, in which it is stated that an award is bind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (The Netherlands), and St. Gobain (France). The Court in SPP did so only because the respondent refused to provide security, thus demonstrating its bad faith. In SPP there was in fact a conflicting result when the Dutch Court entered an enforcement order on the very same day as a French Court annulled the award. Such is the argument. We are afraid that this argument loses sight of the fact that in the present matter we are not concerned with the question as to whether a foreign court should adjourn the decision on the enforcement of the award under Article VI. 1 We are not enforcing any foreign award and the question 1. Article VI--If an application for the setting aside or suspension of the award has been made to a competent authority referred to in Article V(1)(e) the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security. is not whether or not a decision on enforcement should be adjourned. It is the American Court which will have to address itself to that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; .................................................... (Emphasis added) This provision, in our opinion, will be attracted only in a fact-situation where an injuction is sought to restrain a party from instituting or prosecuting any action in a Court in India which is either of ordinate jurisdiction or is higher to the Court from which the injuction is sought in the hierarchy of Courts in India. There is nothing in Cotton Corporation's case which supports the proposition that the High Court has no jurisdiction to grant an injunction or a restraint order in exercise of its inherent powers in a situation like the one in the present case. In fact this Court had granted such a restraint order in V/O Tractoroexport, Moscow v. M/s Tarapore Company and Anr., [1970] 3 S.C.R, 53 and had restrained a party from proceeding with an arbitration proceedings in a foreign country (in Moscow). As we have pointed out earlier, it would be unfair to refuse the restraint order in a case like the present. one for the action in the foreign Court would be oppressive in the facts and circumstances of the case. And in such a situation the Courts have undoubted jurisdiction to grant such a restra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turns on it, we are adverting to this aspect for the sake of fairness to the learned Additional Solicitor General. And now we come to the conclusion. While we are inclined to grant the restraint order as prayed, we are of the opinion that fairness demands that we do not make it unconditional but make it conditional to the extent indicated hereafter. There are good and valid reasons for making the restraint order conditional in the sense that ONGC should be required to pay the charges payable in respect of the user of the rig belonging to the Western Company at the undisputed rate regardless of the outcome of the petition instituted by the ONGC in the High Court for setting aside the award rendered by the Umpire. India has acceded to the New York Convention. One of the objects of the New York Convention was to evolve consensus amongst the covenanting nations in regard to the execution of foreign arbitral awards in the concerned Nations. The necessity for such a consensus was presumably felt with the end in view to facilitate international trade and commerce by removing technical and legal bottle necks which directly or indirectly impede the smooth flow of the river of internation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights and contentions) in this Court in the terms indicated hereinbelow, namely, (a) to accept the said amount subject to the final outcome of Arbitration Petition No. 10 of 1986 pending in the High Court of Bombay or the appeal, if any, arising from the order passed by the High Court in the said matter and (b) further provided the Respondent files an undertaking in this Court to treat the said payment by way of protanto satisfaction in respect of (i) the Award in question, in case it stands confirmed or (ii) a fresh award, if any, that may be passed in future in connection with the original cause of action or (iii) in respect of the original claim giving rise to the arbitration proceedings in question. IV In case the Respondent, Western Company, files undertakings in this Court as contemplated in Clause III hereinabove and yet the appellant ONGC fails to make the payment in the manner indicated in Clause II hereinabove within four weeks of the date of filing of the said undertakings the order of stay granted as per Clause I hereinabove shall stand vacated. V The learned Single Judge before whom the Arbitration Petition No. 10 of 1986 is pending shall refer the matter to a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
