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TMI Blog1969 (10) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The facts chronologically are as follows: A contract was entered into on February 2, 1965, between the Indian and the Russian firms for the supply of earth-moving machinery for a value of Rs. 66,09,372.00. The machinery was required by the Indian firm for executing the work of excavation of a feeder canal as part of the Farakka Barrage Project. On June 9, 1965. the Indian firm opened a Letter of Credit with the Bank of India Ltd., for the entire value of the machinery in favour of the Russian firm. The consignments started arriving at Calcutta in October 1965. On February 22, 1966, the Indian firm wrote to the Russian firm saying that there was something wrong with the design and working of motorised scrapers which had been supplied and which formed one of the items of machinery covered by the contract. One June 6, 1966 came the devaluation of the Indian rupee by 57.48% as a result of which the amount that became payable by the Indian firm to the Russian firm under the contract increased by Rs. 25 lakhs or so. On June 20, 1966, the Russian firm demanded an increase in the Letter of Credit owing to the devaluation. On August 1, 1966, the Indian firm served a notice on the Rus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm for stay of the suit under Section 3 of the Act was dismissed by Ramamurthi J., on April 12, 1968. The application of the Indian firm for an interim injunction restraining the Russian firm from taking any further part in the arbitration proceedings at Moscow was, however, granted. The Russian firm preferred appeals against the orders of the learned single judge before a division bench. The bench maintained the orders of Ramamurthi, J. The present appeals have been brought by the Russian firm by special leave both against the order of the division bench and against the judgment of the learned single judge. This was presumably done because there was some controversy about the finality of the orders which had been made by the single judge of the High Court. 5. The questions which have to be determined in these appeals are quite narrow. The first question is whether the words a submission made in pursuance of an agreement mean an actual or completed reference made pursuant to an arbitration agreement or they mean an arbitration agreement that has come into existence as a result of a commercial contract. According to the appellant firm whenever there is an arbitration agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbitral Awards to which India was a party and which was given effect to in India by the Arbitration (Protocol and Convention) Act, 1937. 7. The provisions of the Act may be noticed. Sections 2 and 3 are in these terms: Section 2 In this Act unless the context otherwise requires, foreign awards means an award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India made on or after the 11th day of October 1960-- (a) In pursuance of an agreement in writing for arbitration to which the Convention set forth in the Schedule applies and (b) in one of such territories as the Central Government being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies. Section 3 Notwithstanding anything contained in the Arbitration Act, 1940, or in the CPC, 1908, if any party to a submission made in pursuance of an agreement to which the Convention set forth in the Schedule applies, or any person claiming through or under him commences any legal proceedings in any Court against any othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration was to take place in a country to whose jurisdiction none of the parties was subject. Article 4 of the Protocol was as follows: The tribunals of the Contracting Parties, on being seized of a dispute regarding a contract made between persons to whom Article applies and including an arbitration agreement whether referring to present or future differences which is valid in virtue of the said Article and capable of being carried into effect, shall refer the parties on the application of either of them to the decision of the arbitrators. ... In order to give effect to this Protocol the Arbitration Clauses (Protocol) Act, 1924 was enacted in England. Section 1(1) of that Act contained provisions similar to Section 3 of the Act with certain differences. When the aforesaid Act of 1924 was enacted the meaning of submission as contained in Section 27 of the English Arbitration Act, 1889 was a written agreement to submit present or future differences to arbitration whether an arbitrator was named therein or not. 9. The Arbitration (Foreign Awards) Act, 1930 was enacted to give effect to a certain convention on the execution of arbitral awards and to amend Sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Act, 1940 there were two sets of laws applicable to what were called Presidency towns and areas which did not fall within those towns. The Indian Arbitration Act, 1899 applied to cases where the subject matter submitted to arbitration was of a nature that if a suit were to be instituted it could be instituted in a Presidency town. Section 4(b) contained the definition of the word submission which was similar to the definition in the English Act of 1889. In the Civil Procedure Code of 1882 Part V dealt with arbitration. These provisions were applicable to such areas which were outside the Presidency towns. When the Civil Procedure Code, 1908 was enacted it contained in the IInd Schedule similar provisions for arbitration. There was, however, no definition of submission or arbitration agreement . The Arbitration Act, 1940 was meant to consolidate and amend the law relating to arbitration in India. The word submission was not defined but the word arbitration agreement in Section 2(a) was stated to mean a written agreement to submit present or future differences to arbitration whether the arbitrator was named therein or not. 12. The phraseology which has been employed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration agreement) . Thus the common case, of an agreement to refer which is never followed by a submission because the claimant prefers to sue instead, is apparently outside the section, although the Protocol clearly meant it to be covered; see the French text of Article 4. The English translation of the French text in the 1950 Act has been stated to be a mistranslation. It has been suggested that the Parliament may have enacted not the true text of the Protocol but a very limited interpretation of the false translation. In Halsbury's Laws of England, Third Edn., Cumulative Supplement 1968, Vol. II, Arbitration, p. 2, reference has been made to the decision of Scarman J., in The Merak(1965) 2 W.L.R. 250 which was affirmed on appeal and which has been followed in Unipat A.G. v. Dowry Hydraulic Units[1967] R.P.C. 401 the statement in the text being that this provision of law applies although no actual submission to arbitration has been made. 13. In the Merak(1965) 2 W.L.R. 250 Scarman J., read, Section 4(2) of the Act of 1950 with the translation of the Protocol in the First Schedule to the Act. According to him the Protocol was concerned with two agreements--one, a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l recognised principle. In this country, as is the case in England, the treaty or International Protocol or convention does not become effective or operative of its own force as in some of the continental countries unless domestic legislation has been introduced to attain a specified result. Once, the Parliament has legislated, the Court must first look at the legislation and construe the language employed in it. If the terms of the legislative enactment do not suffer from any ambiguity or lack of clarity they must be given effect to even if they do not carry out the treaty obligations. But the treaty or the Protocol or the convention becomes important if the meaning of the expressions used by the Parliament is not clear and can be construed in more than one way. The reason is that if one of the meanings which can be properly ascribed is in consonance with the treaty obligations and the other meaning is not so consonant, the meaning which is consonant is to be preferred. Even where an Act had been passed to give effect to the convention which was scheduled to it, the words employed in the Act had to be interpreted in the well established sense which they had in municipal law (See B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It cannot, even by stretching the language bear that meaning in the second part of Section 3 which reads: ... The court unless satisfied that the agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred shall make an order staying the proceedings. Here agreement can have reference to and mean not the commercial contract to which the convention set forth in the Schedule applies but only the agreement to refer or the arbitral clause. Unless the context so compels or requires, the same meaning must ordinarily be attributed or given to the same words used in the section. The above difficulties completely disappear if submission is given the second meaning of an actual submission of a particular dispute or disputes to the authority of a particular arbitrator. The words which we are construing then have a clear, consistent and intelligible meaning, namely, an actual submission made in pursuance of an arbitration agreement or arbitral clause to which the convention set forth in the Schedule applies. The words in pursuance of are also thus saved and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding the terms of the Protocol of 1923 and the Convention of 1927 and said: If the agreement to which the Protocol applies is an agreement for arbitration, there cannot possibly be an agreement in pursuance of that agreement. Section 3 must, therefore, be construed as contemplating a case where not only is there an arbitration agreement in force between the parties but there has also been an actual reference to arbitration. 18. The learned Single Judge has given some reasons why in England as also in India the Statutes insist upon an actual submission before a stay of the suit can be granted. It has been pointed put that in different countries the law relating to arbitration is naturally different. Actual submission has been made a condition precedent for granting stay but the court has been left with no discretion in England and in India. In some of the other countries the order for stay of a suit contrary to the arbitral clause is discretionary, there being no difference between the municipal arbitration and arbitration under the Protocol. It was presumably for this reason that the Parliament insisted upon a real dispute between the parties and an actual reference or sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have been employed. It is more plausible that the Parliament by retaining the expression 'submission' wanted to give it the meaning of an actual submission, as by then there had been firm expression of opinion in the well-known work of Russell on Arbitration and by jurists like Prof. Arthur Nassbaum in an article Treaties on Commercial Arbitration in Vol. 56 of the Harvard Law Review, pointing to that meaning being given to 'submission'. In India, the High Courts had uniformly and in unequivocal terms taken that view. (See W. Wood Son Ltd.--Supra). 20. The language in the relevant article of the Convention of 1958 had also undergone a change. According to Art. II, the term agreement in writing was to include an arbitral clause in a contract or an arbitration agreement and that term was stated to mean something by which the parties undertook to submit to arbitration all or any differences which had arisen or which might arise between them in respect of any defined legal relationship whether contractual or not concerning a subject matter capable of settlement by arbitration. Thus, the term agreement in writing embraced an arbitral clause or an agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court whenever the circumstances of the case make such an interposition necessary or proper. This jurisdiction will be exercised whenever there is vexation or oppression. In England, Courts have been. very cautious and have largely refrained from granting stay of proceedings in foreign Courts (Cheshire's Private Industrial Law, 7th Ed. pages 108-110). The injunction is, however, issued against a party and not a foreign court. 25. Although it is a moot point whether Section 35 of the Arbitration Act, 1940, will be applicable to the present case, (Shiva Jute Baling Limited v. Hindley Company Limited[1969] 1 S.C.R.569 it was assumed that Section 35 applied to protocol arbitration.) The principle embodied in that section cannot be completely ignored while considering the question of injunction. According to that Section no reference nor award can be rendered invalid by reason only of the commencement of legal proceedings upon the subject of the reference, but when legal proceedings upon the whole of the subject matter of the reference have been commenced between all the parties to the reference and a notice thereof has been given to the arbitrators or umpire, all further proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granting an interim injunction in favour of the Indian Firm. 29. The appeals fail and are dismissed but in view of the peculiar nature of the points involved, there will be no order as to costs. VAIDYNATHIER RAMASWAMI, J. 30. I regret I am unable to agree with the judgment pronounced by Grover, J. 31. The first respondent had entered into a contract with the Government of India for the excavation work in the feeder canal of the Farakka Barrage project. To fulfil this contract with the Government of India and for the excavation work the first respondent required certain construction machinery such as scrapers, both towed and motorised, crawlers, tractors and bulldozeRs. The respondent No. 1 agreed to purchase them from the appellant and the latter agreed to supply and deliver and the terms and conditions of the contract were embodied in a document dated February 2, 1965 signed by both the parties. In pursuance of the contract the first respondent opened a confirmed irrevocable and divisible letter of credit with the second respondent for the entire value of the equipment, that is, Rs. 66,09,372/- in favour of the appellant negotiable through the Bank of Foreign Trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fts representing increase in the price of the machinery consequent on the devaluation of the Indian rupee in accordance with the clause in the contract. Though correspondence was going on between the parties, no settlement could be arrived at. When the time came for the payment of the balance of 75% of the letter of credit the first respondent instituted a suit C.S. 118 of 1967 in the Madras High Court in violation of the arbitral clause and obtained an ex parte injunction against the appellant from operating the letter of credit. On November 5, 1967 the appellant instituted arbitral proceedings before the Foreign Trade Arbitration Commission of U.S.S.R. Chamber of Commerce, Moscow in accordance with Clause 13 of the contract for payment of the price of the machinery. Notice was issued to the first respondent to choose its nominee to represent it in the Arbitration Commission and the date of hearing was also notified by the first respondent. But the first respondent failed to appear before the Foreign Trade Arbitration Commission. Thereafter the appellant entered appearance in C.S. 118 of 1967 under protest and filed an application No. 2604 of 1967 before the High Court under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip, whether contractual or not, concerning a subject-matter capable of settlement by arbitration. 2. The term agreement in writing shall include an arbitral clause in a contract, or an arbitration agreement signed by the parties or contained in an exchange of letters or telegrams. 3. The Court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. The argument of the first respondent is that Section 3 of the Act can be invoked by the appellant only if it had implemented the arbitration agreement by actually submitting the dispute to the arbitrator or arbitrators prior to the institution of the suit. In the present case if there was any such reference to arbitration it was only on November 4, 1967, that is. about three weeks after the suit had been filed in the High Court. The contrary view point was put forward by Mr. Mohan Kumaramangalam on behalf of the appellant. It was said that; Section 3 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taying the proceedings. In the Indian Arbitration Act of 1889 Section 4(b) defines submission in exactly the same terms as Section 27 of the English Act of 1889, that is, a submission means a written agreement to submit present or future differences to arbitration whether an arbitrator is named or not. In the Arbitration Clauses (Protocol) Act of 1924 (14 15 Geo. V c. 39) we have the phrase submission made in pursuance of an agreement and the phrase submission appears to be employed in the special statutory sense. Section 1 of this Act states: Staying of Court proceedings in respect of matters to be referred to arbitration under commercial agreements.--(1) Notwithstanding anything in the Arbitration Act, 1889, if any party to a submission made in pursuance of an agreement to which the said protocol applies or any person claiming through or under him, commences any legal proceedings in any Court against any other party to the submission, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to such legal proceedings may at any time after appearance, and before delivering any pleadings or taking other steps in the proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act of 1937 (Act 6 of 1937) was enacted. Section 3 of this Act states: Notwithstanding anything contained in the Arbitration Act, 1899, or in the CPC, 1908, if any party to a submission made in pursuance of an agreement to which the Protocol set forth in the First Schedule as modified by the reservation subject to which it was signed by India applies, or any person claiming through or under him, commences any legal proceeding in any Court against any other party to the submission or any person claiming through or under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time after appearance and before filling a written statement or taking any other steps in the proceedings, apply to the Court to stay the proceedings: and the Court unless satisfied that the agreement or arbitration has become inoperative or cannot proceed, or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings. The First Schedule of this Act contains articles of the 1923 Convention of which Article 1 reads as follows: Each of the contracting States recognises t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... country in which it is sought to be relied upon. It should be noticed that Article 1 of the 1927 Convention defines an arbitration agreement as a submission to arbitration. 38. The next event in the legislative history is the New York Convention adopted at the United Nations Conference in June. 1958 on International and Commercial Arbitrations. It was felt that the international conventions up till then reached did not effectuate a speedy settlement of disputes and did not meet the requirements of international trade and commerce and disputes arising therefrom and that there should be some modification and the Convention was agreed to by almost all the countries. India accepted the same and enacted the Foreign Awards (Recognition and Enforcement) Act, 1961 to implement the conventions so far as India was concerned. This Act of 1961 repealed the Protocol Act of 1937. With regard to Section 3, the provision concerning stay of proceedings in a civil court in violation of the arbitral clause. the language is the same as in the Protocol Act of 1937. 39. The question presented for determination is what is the true meaning and effect of the words if any party to a submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facie presumption that parliament does not intend to act in breach of international law, including specific treaty obligations. In the words of Diplock, L.J. in Salomon v. Commissioners of Customs and Excise[1966] 3 All E.R. 877 If the terms of the legislation are clear and unambiguous they must be given effect to whether or not they carry out Her Majesty's treaty obligations, for the sovereign power of the Queen in parliament extends to breaking treaties [see Ellerman Lines Ltd. v. Murrey[1930] All E.R. 503 and any remedy for such a breach of an international obligations lies in a forum other than Her Majesty's own courts. If the terms of the legislation are not clear, however, but are reasonably capable of more than one meaning, the treaty itself becomes relevant, for there is a prima facie presumption that parliament does not intend to act in breach of international law, including therein specific treaty obligations; and if one of the meanings which can reasonably be ascribed to the legislation is consonant with the treaty obligations and another or others are not, the meaning which is consonant is to be preferred. Thus, in case of lack of clarity in the words used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as follows: In my opinion, the Sub-section must be read together with the protocol as it stands translated into the English of the First Schedule to the Act. Article 1 of the translated protocol provides for the recognition of the validity of an agreement whether relating to existing or future differences whereby the parties to a contract agree to submit to arbitration differences arising in connection with that contract, and expressly reserved to contracting states the right to limit the obligation of recognition to contracts which are considered commercial. Article 4 provides that the tribunals of the contracting states, on being seised of a dispute regarding a contract which includes an arbitration agreement whether referring to present or future differences, shall refer the dispute to arbitration. Thus the protocol is concerned with two agreements--one, a contract, commercial in character or giving rise to a difference relating to matters that are either commercial or otherwise capable of settlement by arbitration, between parties subject to the jurisdiction of different contracting states; the other, an arbitration agreement whereby the parties to such a contract agree t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement relates to present or future differences. The same view is expressed in Dicey Morris, The Conflict of Laws, 8th edn. p. 1075: Section 4(2) of the Act imposes upon the court a duty to stay the proceedings if a party relies on 'a submission to arbitration made in pursuance of an agreement to which the Protocol applies'. This condition is satisfied if the parties have agreed to submit present or future disputes to arbitration. The term 'submission' includes an agreement to refer. The court is therefore under a duty to stay the proceedings although no arbitrators have been appointed, and the fact that an arbitration clause is included in the contract between the parties suffices for the application of Section 4(2). There is thus no discrepancy between the section and Article 4 of the Protocol to which it purports to give effect. According to Article 4 the court must refer the parties to the decision of the arbitrators if the contract between the parties includes an arbitration agreement whether referring to present or to future differences. The word submission used in Section 4(2) must be regarded as synonymous with the term 'arbitration agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y judicial decision or by a long course of practice is adopted in the framing of a later statute, it is a sound rule of construction to hold that the words so adopted were intended by the Legislature to bear the meaning which has been so put upon them . Even in this qualified form, however, the rule has not been acknowledged without protest (see the speech of Lord Blanesburgh in B arras v. Aberdeen Steam Trawling CV.[1933] A.C. 402 The presumption is weak and is passed on an optimistic fiction. The rule has been criticised by Dr. C. K. Allen: The second petrifying factor is the real or supposed rule (now, however, questioned) that once a word or phrase has been given a certain judicial meaning, it is deemed to bear that meaning not only in all subsequent cases, but in all subsequent statutes. This is an offshoot of the somewhat optimistic assumption that the legislature must be presumed to know the actual state of the law. Consequently, if a word has once been given a particular meaning in any case of authority, however, obscure, in connection with any statute, however recondite, the draftsman who uses that word in a later enactment is, so to speak, 'affected with notice' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract. The contention is that if submission has to be taken in the sense of an arbitration agreement it would render the words submission made in pursuance of an agreement meaningless and unintelligible. In my opinion the argument proceeds on a fallacy. A statute should not be construed as a theorem of Euclid but the statute must be construed with some imagination of the purpose which lies behind the statute. The doctrine of literal interpretation is not always the best method for ascertaining the intention of Parliament. The better rule of interpretation is that a statute should be so construed as to prevent the mischief and advance the remedy according to the true intent of the makers of the statute. The principle was for example, applied by Lord Halsbury in Eastman Photographic Co. v. Comptroller of Patents[1898] A.C.571 where the question was whether the word 'solio' used as a trade mark, was an invented or a descriptive word. In examining this question Lord Halsbury said: Among the things which have passed into canons of construction recorded in Heydon's case we are to see what was the law before the Act was passed, and what was the mischief or defect for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing performed Ramamurti, J. was apparently of the view that the alleged nullity of the contract on the basis of mutual mistake was a matter that the court has to examine further after recording evidence and that was a ground on which proceedings cannot be stayed under Section 3. 48. I consider, therefore, that C.A. 1209 and 1834 of 1969 should be set down for further hearing on these points., 49. Civil Appeals Nos. 1208 and 1833 of 1969 arise out of the application No. 106 of 1968 filed by the first respondent for injunction to restrain the first respondent for taking further part in the arbitration proceedings in Moscow. Ramamurti J., took the view that since the application No. 2604 of 1967 for stay of the proceedings in the pending suit C.S. 118 of 1967 had been dismissed the first respondent's injunction petition should be allowed on the ground that the two forums were mutually exclusive. In the connected appeals I have taken the view that the appellant would be entitled to an order of stay of the proceedings in C.S. 118 of 1967 under Section 3 of Act 45 of 1961. Even assuming that Section 3 of the Act is not applicable this is not a proper case in which the High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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