l Appeal No 2434 35 of 1984 Appeals by Special leave from the Judgment and Order dated the 19th to 21st day of October 1983 of the Bombay High Court in Appeal Nos 404  405 of 1983
FS Nariman SS Ray IMChagla PL Dubey APChinoy EB Desai NP Bharucha NR Khaitan Anil Kumar Sharma  Praveen Kumar for the appellants
NA Palkhivala KS Cooper SF Dastur  Dr YS Chitale SS Shroff SA Shroff  Mrs PS Shroff for Respondents in CA
No 1488 of 1984
KS Cooper JJ Bhatt Amit Desai SA Shroff and Mrs PS Shroff for the Respondent in CA
No 1489 of 1984
The Judgment of the Court was delivered by TULZAPURKAR J
These two appeals raise the following two questions for our determination 1
Whether under sec
3 of the Foreign Awards Recognition and Enforcement Act 1961 having regard 452 to its scope a suit in the nature of a petition under sec
33 of the could be stayed  If so whether the Ist Respondents have made out a case for staying the Appellants  suit No 832 of 1982  2
Whether the three claims referred by the Ist Respondents to the Court of Arbitration of the 2nd Respondents are beyond the scope of the Arbitration Clause being Article XVII contained in the Contract dated August 24 1964 or they are arising out of or related to the said Contract  The facts giving rise to the aforesaid two questions may be stated
The Appellants Renusagar Power Company Limited for short Renusagar  are a company incorporated under the having their Registered Office at Renukoot District Mirzapur in Uttar Pradesh
The Ist Respondents General Electric Company for short GEC  are a company incorporated under the laws of the State of New York and carry on their business inter alia at 570 Lexington Avenue New York USA
The 2nd Respondents are the International Chamber of Commerce Court of Arbitration for short ICC  having their registered office in Paris France
By a Contract in writing dated August 24 1964 bearing Ref
9584 GEC agreed  to sell to Renusagar equipment for a thermal electric generating plant to be erected at Renukoot on the terms and conditions set out therein
The work to be performed under the contract included the supply of equipment spare parts and services in accordance with the Proposed Specification s dated November 12 1963 and contained in GEC s letter dated October 14 1963 together with the attached Minutes of the Meeting of October 10 1963
The total purchase price  called the contract Base Price for all the work was  13195000 payable by Renusagar in lawful currency of the USA in the manner stipulated in the Contract
It appears that the parties intended that delivery of the equipment and spare parts etc would be completed within 15 months of the Contract Effective Date which was December 31 1964 ie up to March 30 1966 and that the erection of the plant would be completed within 16th to 30th Month ie from April 1 1966 to June 30 1967 and that the plant would 453 be fully operational by the end of 30th Month from the Contract Effective Date
The parties therefore agreed that substantial payment of the purchase price by Renusagar should commence when the plant became operational ie by June 30 1967 it was also agreed that no interest would be payable by Renusagar during the delivery period that interest shall be paid during the erection period ie 16th to 30th Month and thereafter till payment but the interest during the erection period would be capitalised and added on to the principal
Accordingly article III of the Contract stipulated that initially 10 of the total Contract Base price the amount coming to US  1319500 should be paid either in cash or by means of a Letter of Credit within 30 days of the Contract Effective Date and that the balance of 90 of the purchase price plus interest at 6 12 per annum from 16th to 30th Month aggregating to US  1277605875  11875500
for principal plus  90055875 being the capitalised interest at the aforesaid rate for the aforesaid period should be paid in accordance with the schedule of payments set out therein
The schedule for the payment of the said balance of 90 of the purchase price provided for payment to be made in sixteen six monthly instalments of US  79850368 each the first of such instalments being payable on 30 6 1967 the second on 31 12 1967 the third on 30 6 1968 the fourth on 31 12 1968 and so on with the last instalment falling due on 31 12 1974
The obligation to make such payment was to be evidenced by 4 series A B C D of 16 unconditional negotiable promissory notes to be executed by Renusagar
It was further agreed that in case GEC received an exemption from the Government of India from payment of Income Tax on interest receivable by it from Renusagar then the interest for that portion of the period shall be computed at 6 instead of 65 per annum and that the concerned promissory notes would be replaced or substituted by fresh promissory notes for amounts reflecting the adjustment in payment of interest necessitated by the grant of tax exemption
The Contract further provided under article XIV B that should GEC s application for exemption be denied Renusagar may withhold the Indian Income tax applicable to any payments of interest but shall furnish GEC with tax receipts on all with held amounts paid to the Government of India
Such provision was obviously made with a view to enable GEC to obtain corresponding credit for the sum in their US Tax Assessment
The Contract also required Renusagar to furnish guarantee of the United Commercial Bank for payment of the full amount of pro 454 missory notes the form of the promissory notes and the Deed of Guarantee were annexed to the Contract
Under article XIX A it was provided that the rights and obligations of the parties would be governed in all respects by the laws of the State of New York USA The Contract contained an Arbitration Clause in article XVII the relevant portion whereof runs thus Any disagreement arising out or of related to this contract which the parties are unable to resolve by sincere negotiation shall be finally settled in accordance with the Arbitration Rules of the International Chamber of Commerce
As provided in the said Rules each party shall appoint one Arbitrator
and the Court of Arbitration of the International Chamber of Commerce shall appoint the third Arbitrator 
Arbitration proceedings shall be conducted at such time and place as the Court of Arbitration shall decide
Judgment upon an award may be entered in any court of competent jurisdiction
 Pursuant of the said Contract Renusagar made the initial payment 10 of the Contract Base price and also issued in all 64 promissory notes 16 in each of the four series all dated 31 12 1964 but with due dates of payment synchronizing with the dates indicated in the Schedule of payments and forwarded the same to the Escrow Agent under the Escrow Arrangement mentioned in article
III B whereunder the Notes were to be released to GEC in numerical sequence and in amounts determined by the Escrow Agents by applying certain rather complicated formulae specified in sub clauses a to e of Clause B Renusagar also furnished a guarantee executed by the UCO Bank irrevocably guaranteeing to GEC and to any subsequent holder in due course of the Notes the full and prompt payment of the principal and interest on the Notes
Subsequently by an agreement recorded in GEC s letter dt
June 11 1965 and as approved by the Central Government the said 1964 Contract IGE 9584 was extended to include the supply of unfabricated structural steel to Renusagar for approximately US  300000 on the same conditions in regard to payment as contained in the original 1964 Contract
It was agreed that Renusagar would issue a fifth series E series of 16 promissory notes bearing interest at 65 per annum evidencing 90 of the price of the structural steel the instalments under the 5th series were payable on the same dates as the corres 455 ponding promissory notes of the earlier four series
It was expressly clarified in the letter of June 11
1965 that except for the modifications made by it all other terms and conditions of the Contract IGE 9584 shall apply in other words the Arbitration Clause of the 1964 Contract became applicable to the said supply of structural steel
During the implementation of the Contract two events occurred giving rise to GEC s three claims against Renusagar that are sought to be referred to arbitration of ICC namely
1 grant of tax exemption by the Government of India to GEC in respect of interest on purchase price receivable by it from Renusagar and the revocation thereof and 2 re scheduling of dates of payment of purchase price agreed to by the parties but not approved by the Reserve Bank and the Government of India
As regards the former it appears that by two orders dated September 3 1965 and June 7 1967 passed under section 1015 iv c of the Indian Income Tax Act 1961 the Government of India granted exemption to GEC from payment of Indian income tax on the interest receivable by it from Renusagar with the result that GEC became entitled to receive the interest on the unpaid purchase price at the rate of 6 tax free instead at 65 subject to tax
However by its subsequent order dated September 11 1969 the Government of India purported to retrospectively cancel or revoke the said tax exemption whereupon in or about May 1970 Renusagar filed a writ petition Civil writ No 179 of 1970 in the Delhi High Court challenging the said cancellation or revocation of tax exemption and further sought an injunction restraining the Government of India from implementing the said cancellation or revocation
On May 18 1970 Renusagar obtained an order from the Delhi High Court that on its furnishing security for Rs four lakhs the cancellation or revocation of exemption shall be stayed and the Government of India and its officers were restrained by an interim injunction from enforcing or implementing the impugned order dated September 11 1969 in other words on furnishing security of Rs four lakhs which Renusagar did the tax exemption continued with the result that there was no necessity to deduct any amount from interest payable to GEC nor to deposit the same as tax with the Indian Government
Even so Renusagar by its letter dated June 30 1970 informed GEC that it would continue to calculate interest at 65 and make payment to GEC after withholding and keeping in reserve the tax liability out of the amount due to it
The amount so withheld came 456 to 73 of interest payable to GEC on the instalments of purchase price after 1970 and Renusagar only made payment of interest to the tune of 7 to GEC Surprisingly the interest at 73 which represented the tax deducted at source was not even made over by Renusagar to the Indian Government which resulted in depriving GEC of the benefit of getting the corresponding credit in their U section Tax Assessments
Ultimately the Delhi High Court by its judgment and order dated November 17 1980 allowed Renusagar s writ petition and quashed the impugned order dt
Sept 11 1969 revoking the tax exemption
In the correspondence that ensued Renusagar not merely acknowledged that the amount so withheld and credited to reserve was US  2412 68020 calculated on the basis of 65 subject to tax vide letter dt
25376 together with Statement attached but also sought from the Commissioner of Income Tax a no objection certificate and from the Reserve Bank its approval vide Two Letters both dt
3 6 1981 for making the remittance to GEC of US  213078552 calculated on 6 tax free basis to which GEC became entitled as a result of Delhi High Court s decision
It is this sum of 21 Million Dollars US being the Unpaid Regular Interest wrongly deducted and wrongly withheld and kept with themselves by Renusagar from 1970 onwards which is the first claim referred by GEC to the arbitration of ICC As regards the latter it may be stated that on account of the alleged delays in the shipment and erection schedule Renusagar requested GEC to grant deferment in the payment schedule and as a result of the negotiations that ensued Renusagar and GEC inter alia purported to amend the dates of payment of the purchase price evidenced by the promissory notes and certain decisions in that be half were recorded in a Memorandum dated December 30 1966 and letters dated January 5 1967 October 4 1967 and October 9 1967 this purported re scheduling of the dates of payment of the purchase price as arrived at by the aforesaid documents was sought to be reflected by the parties in the said Contract IGE 9584 by executing a formal Amendment dated October 1 1968 thereto
This Amendment expressly provided that all other terms and conditions of the original contract shall remain in full force and effect
Renusagar executed fresh promissory notes as per the Amendment dt
Oct 1 1968 as also having regard to tax exemption granted as above and sent them to the Escrow Agents
The October 1968 Amendment was however subject to the approval of the Reserve Bank and the Central Government
It appears that in December 1968 the parties once 457 again attempted to re schedule the payment of instalments of purchase price
In July 1969 Renusagar sought the Central Government s approval to the re scheduling of the dates of payment as embodied in October 1968 Amendment as also in the Memorandum of the Meeting held in December 1968 but by letters dated August 1 1969 and August 4 1969 the Central Government declined to approve the re scheduling of the dates of payment on the ground that it would result in larger out flow of foreign exchange and advised Renusagar to effect payments as per the original schedule including instalments which had since fallen due
The result was that the original schedule of payment remained operative and there was delay on the part of the Renusagar to make payment of certain instalments on due dates
Such delays occurred in respect of four instalments namely instalments No1 evidenced by promissory note No1 was payable on 3061967 but was paid in instalments by July 1970 instalment No2 evidenced by promissory note No2 was payable on 31121967 but the same was paid in instalments by December 1972 instalment No4 evidenced by promissory note No4 was payable on 311268 but was paid in instalments by December 1973 and instalment No 5 represented by promissory note No 5 was payable on 3061969 but was in fact paid in instalment by February 1976
On account of the delays in the payment of instalments of purchase price together with interest Renusagar became liable to pay delinquent interest to GEC
In the correspondence on the subject Renusagar accepted the liability to pay such delinquent interest and made annual acknowledgements thereof
In its telex message dated March 25 1976 Renusagar in terms acknowledged its liability to pay such delinquent interest amounting to US  848010 52 calculated on the basis of 65 subject to tax to GEC which liability if calculated on 6 tax free basis to which GEC became entitled as a result of the Delhi High Court s decision comes to US
 78415184
This liability for Delinquent Interest is the second claim referred by GEC to the arbitration of ICC The third claim for Compensatory Damages which GEC has made against Renusagar and which is sought to be referred to arbitration arises out of non payment of the aforesaid two claims of Unpaid Regular Interest and Delinquent Interest for over 12 years the quantum being calculated by way of interest on those two amounts at the market rate of 18 per annum amounting to US  416053488 up to 31 31982 to be extended till date of actual payment
According to GEC for a long period of 12 years Renu 458 sagar has illegally and wrongfully retained these two funds with itself and has enjoyed the use thereof for its own private advantage has correspondingly totally deprived GEC of their use for which Renusagar must compensate
GEC has also asserted that such compensatory damages are due to it from Renusagar because Renu sagar must be regarded as stake holder or constructive trustee of those funds from the various dates on which they became due and payable but Renusagar has managed to retain them with itself on one pretext or the other and under the common law jurisprudence shared equally by Indian and American law restitution is payable by a stake holder to the party ultimately determined to be rightful beneficiary and owner of the funds
It may be stated that though in the correspondence indicated above Renusagar accepted its liability to pay the Unpaid Regular Interest 21 million US Dollars and the Delinquent Interest US  784 15184 by its letter dated September 21 1981 Renusagar put forward certain counter claims and in a statement attached to that letter enlisted about 6 or 7 matters giving rise to such counter claims against GEC By a notice of intention to arbitrate dated March 1 1982 GEC called upon Renusagar to remit the aforesaid three claims failing which steps to refer the disputes to the Court of arbitration of ICC in pursuance of article XVII of the Contract were threatened and this was followed by a letter dated March 2 1982 addressed to the Secretariat Court of Arbitration of ICC containing a Request for Arbitration being undertaken by it seeking reliefs as set out in the notice to Renusagar
After ICC took cognizance of the Request for Arbitration by GEC it called upon Renusagar to nominate its Arbitrator file its reply and remit certain sums towards the administrative expenses and arbitration fees
On June 11 1982 Renusagar filed suit No 8321982 in the Bombay High Court on its Original Side against GEC and ICC seeking a declaration that the claims referred to the arbitration of ICC by GEC were beyond the scope purview of the arbitration agreement contained in article XVII of Contract IGE 9584 dated August 24 1964 and that GEC was not entitled to refer the same to the arbitration a consequential prayer for injunction restraining GEC and ICC from proceeding further with the reference was also made and an injuction was also sought against ICC restraining it from requiring Renusagar to make any deposit towards administrative expenses and arbitration fees
On the some day on a notice 459 of Motion an ex parte ad interim relief in the aforesaid terms was obtained by Renusagar
On August 11 1982 GEC filed Arbitration Petition No 96 of 1982 under section 3 of the Foreign Awards Recognitation and Enforcement Act 1961 seeking stay of suit No 832 of 1982 and all proceedings therein and a prayer for vacating the ad interim reliefs obtained by Renusagar was also made
Both the matters GEC section stay petition under section 3 and Renusagar Notice of Motion for confirmation of ad interim reliefs were heard together and disposed of by Mr Justice Pendse by a common judgment and order dated April 19 20 1983
On a consideration of the rival contentions that were urged before him the learned Judge negatived Renusagar s contention that the Arbitration Clause in the original 1964 Contract could not be availed of by GEC as a fresh agreement creating new rights and liabilities had come into existence by reason of Oct 1968 Amendment which did not provide for arbitration on two grounds namely that the Oct 1968 Amendment had kept alive all other terms and conditions of the 1964 Contract including Arbitration Clause and in any case the Oct 1968 Amendment had fallen through for lack of Government s approval he also took the view that though the first two claims sought to be referred to arbitration by GEC were based on the promissory notes executed by Renusagar the issuance of the promissory notes towards the purchase price was provided under the Contract itself and these were not by way of any independent or separate contracts in discharge of the obligation to pay the purchase price under the contract and since the Arbitration Clause covered all disputes arising out of the Contract those claims fell within the Arbitration Clause and as regards the third claim for compensatory damages he took the view that the liability to pay the same arose due to failure to carry out the terms and conditions of the Contract in regard to payment of purchase price and that even assuming that the said claim was one in tort it was directly and inextricably connected with the terms and conditions of the Contract and certainly  arose out of the Contract or was  in relation to the Contract and therefore could be entertained by the Arbitrators
As regards the prayer for stay of suit the learned Judge held that since all the ingredients of section 3 of the Foreign Awards Recognition and Enforcement Act 1961 had been satisfied it was obligatory upon the Court to stay the suit and GEC was entitled to that relief
He therefore allowed the Arbitration Petition 961982 granted the stay of suit and all the proceedings therein and 460 vacated all the interim reliefs which were granted earlier by the ad interim order
Renusagar preferred two appeals being Civil Appeal Nos
404 405 of 1983
At the hearing of the appeals Counsel for Renusagar raised four contention firsts according to him an Arbitrator had no jurisdiction to decide the limits of his own jurisdiction and since in the case of international arbitration the jurisdiction of the Arbitrator had to be decided according to the law of the Forum where the question is raised in the instant case being the Indian Law the jurisdiction of the Arbitrator according to that law had to be decided by the Court and not by the Arbitral Tribunal secondly the dispute sought to be referred related substantially to the claim for interest and that claim had to be and was so stated in the Notice of intention to arbitrate founded on the promissory notes which were independent contracts by themselves and therefore the claim did not arise out of the suit Contract and hence could not be the subject of arbitration thirdly the claim for compensatory interest was really a claim for damages arising out of tort and such a claim was in any case not covered by the suit Contract and fell outside the scope of the Arbitration Clause and fourthly in any event Renusagar had made out a prima facie case by raising serious triable issues in the suit which should enable it to claim an injuction restraining the arbitration proceedings
Though GEC had raised a contention that the question of the Arbitrator s jurisdiction had to be decided according to American Law counsel for GEC made a concession that for the purposes of the appeals the Court should proceed on the basis that question was to be decided according to Indian Law
Proceeding on that basis the court of Appeal negatived all the contentions and ultimately confirmed the trial Judge s order whereby Renusagar s suit was stayed and the ad interim reliefs were vacated
In support of these appeals preferred against the judgment and order of the Court of appeal dated October 19 20 21 1983 Counsel for Renusagar have basically raised two contentions 1 that under s3 of the Foreign Awards Recognition and Enforcement Act 1961 for short the Foreign Awards Act having regard to its scope a suit in the nature of a petition under s33 of the 
cannot be stayed and that no case has been made out by GEC for staying Renusagar s suit No 8321982 which is of that nature and 2 that on merits the three claims referred by GE C to the Court of Arbitration of ICC are beyond the scopepurview of the Arbitra 461 tion Clause being article XVII contained in the Contract IGE 9584 as these do not arise out of nor relate to the said Contract
By way of elaborating the first contention Counsel pointed out that suit No 8321982 filed by Renusagar is merely for a declaration that the three claims sought to be referred to arbitration are beyond the scope and purview of the Arbitration Clause and no other relief on the merits of those claims is sought that such a suit is really in the nature of a petition under s33 of the  inasmuch as it seeks to have the effect scope of the arbitration agreement determined that such a suit can never be stayed under s3 of the Foreign Awards Act and that therefore the petition under s3 which is really in the nature of s34 application under the  is totally misconceived and liable to be dismissed Counsel further submitted that the suit filed by Renusagar is not in respect of any matter agreed to be referred to arbitration as required by s3 and therefore the stay sought for by GEC should be refused Counsel further urged that the Court acting under s3 like the Court acting under s34 of the  being a Court of limited jurisdiction cannot determine the question of the existence validity or effect of the arbitration agreement which is the only issue to be tried in Ranusagar s suit and it is for the Court trying the suit to decide the question raised in the suit and therefore a stay if granted under s3 would finally determine the suit or render it almost dead for all practical purposes and therefore no relief on the stay petition can be granted which will have such effect Counsel finally submitted that the question raised in the suit relating to the effect scope of the arbitration agreement which is the same as the question relating to the existence thereof is such as is incapable of being finally determined by the Arbitrators and hence such a suit cannot be stayed under s3 of the Foreign Awards Act
According to Counsel the aforesaid submissions are founded on the well settled position in law English and Indian that questions or issues which pertain to the existence validity or effect scope of an arbitration agreement contained in the underlying commercial Contract are matters which relate to the jurisdiction of the Arbitrator and are not within the competence of the Arbitrator however widely worded the Arbitration agreement may be but these have to be decided by the Court in an application under s33 or in a suit which is of that nature as is the case here
On the other hand Counsel for GEC contended that the schemes of the Foreign Awards Act and the Indian are 462 not identical that there are various material differences which have a bearing on the issue whether a suit seeking determination of the effect scope of an arbitration agreement can or cannot be stayed in a petition under s3 of the Foreign Awards Act and that the answer to the said question will depend upon proper construction to be placed on s3 in the light of the scheme of that Act Counsel urged that since all the ingredients of s3 have been satisfied the stay of Renusagar s suit will be obligatory
Alternatively Counsel contended that the legal position both under English and Indian Law is not as has been submitted by Counsel for Renusagar Counsel urged both under English law and Indian law it is well settled that it is open to the parties to have an arbitration agreement incorporating words of the widest amplitude so as to embrace even the questions of its existence validity or effect scope but according to him an enquiry into the scope and effect of an arbitration agreement and a challenge to the existence or validity thereof are not the same but fundamentally different inasmuch as the first pre supposes that the arbitration agreement exists in fact and in law and the enquiry then is limited to the scope and effect thereof counsel further contended that whenever it is said that an arbitrator cannot decide the question of his own jurisdiction all that is intended is that he cannot determine that too finally the question of the existence factual or validity ie legal existence of the arbitration agreement if contained in the underlying commercial Contract and this must be so for if the existence or validity of the underlying commercial Contract is successfully challenged the arbitration clause which is the part and parcel thereof must perish with it and therefore the Arbitrator will have no jurisdiction to decide the issue of the existence or validity of the agreement but even here it is well settled that if the arbitration agreement so widely worded is separate and independent from the commercial Contract the arbitrator will have jurisdiction to decide the questions about the existence or validity of the commercial contract but Counsel urged that these principles have no application whatsoever to a case where the issue relates to the scope and effect of the arbitration agreement contained in the underlying commercial contract and the arbitration agreement is wide enough to include such an issue for in such a case the Arbitrator will have jurisdiction to decide that issue
This being the well settled legal position Counsel urged that since in the instant case the Arbitration Clause contained in the underlying commercial Contract IGE 9584 is of the widest amplitude it is the Court of Arbitration of ICC which will have jurisdiction to 463 adjudicate not merely three claims of GEC on merits but also the issue whether those claims fall within the Arbitration Clause or not
However Counsel further contended that the issue pertaining to the scope and effect of the arbitration agreement if raised in an application under sec
34 of the the Court has to decide it and the Court s decision thereof will naturally be binding on the Arbitrators even though the issue was within the competence of the Arbitrators because of the wide wording of the Arbitration Clause and that is why the Court of Appeal has rightly expressed the view that since it has decided the issue whether the three claims arise out of or are related to the contract affirmatively it will be binding on the Court of Arbitration of ICC and it will be futile for that court of Arbitration to go into that question again
By way of elaborating the second contention Counsel submitted that the under lying commercial Contract IGE 9584 for supply and sale of goods and services contains no obligation to pay any interest after June 30 1967 ie after the 30th month from the Contract Effective Date whether at 6 12 or 6 but that such obligation to pay interest after June 30 1967 is only to be found in the promissory notes and GEC s first claim of 21 million US Dollars is essentially approx 80 for unpaid regular interest due after June 30 1967 and the second claim for US  7815184 is entirely for delinquent interest due after June 30 1967 and therefore substantially these two claims preferred before the Arbitrators do not arise out of the Contract nor are they in relation thereto but arise under the promissory notes and hence fall outside the scope of arbitration agreement according to counsel further the promissory notes executed by Ranusagar were in complete discharge of the obligation to pay price and interest thereon under the Contract and these notes constitute independent and separate contracts by themselves and therefore the liability arising thereunder cannot be regarded as any arising out of the contract or in relation thereto and what is more these claims have been described by GEC in their Notice of intention to arbitrate as arising under the promissory notes as regards the claim for compensatory damages it being a liability arising in tort for wrongful retention of the first two funds and since it was being enforced on the basis of Renusagar s status as a stakeholder or constructive trustee the same is clearly outside the scope of the arbitration agreement
Such being the precise nature of the three claims that have been referred by GEC to arbitration counsel urged that since the issue of arbitrability of these claims is being raised 464 in Renusagar s suit it is but proper that till the issue raised in the suit is finally decided by the Court the arbitration proceedings should be injuncted
On the other hand Counsel for GEC vehemently disputed that the Commercial Contract IGE 9584 contains no obligation to pay any interest on unpaid purchase after June 30 1967 or that such obligation to pay interest after that date is only to be found in the promissory notes he pointed out that such obligation is to be found in the Contract itself and could be readily inferred from article IIIA3c read with article
XIV B and as such the first two claims for Unpaid Regular Interest and Delinquent Interest due after June 30 1967 preferred before the arbitrators not merely arise out of but really arise under the Contract further the third claim for Compensatory Damages which flows by way of corollary from wrongful detention of the first two funds which ought to have been paid under the Contract is so closely connected with the contract that it is clearly in relation to it all the three claims thus fall within the scope of the Arbitration Clause
Counsel seriously disputed that the promissory notes executed by Renusagar were or are in discharge of the obligation to pay the price and interest thereon under the Contract or that these notes constitute independent and separate contracts by themselves but contended that these are a part of the Contract and the two are so in severable and inextricably bound together that the obligation under the Contract can never be deemed nor intended to have been completely discharged by the mere execution of the notes and in support of this contention several aspects of and circumstances emerging from the Contract were relied upon by him
Counsel urged that real nature of the claims preferred before the Arbitrators and not the nomenclature or description thereof by any party would be relevant and decisive and in this behalf was quick to point out that Renusagar though it now contends that such interest arises under the promissory notes has described it as payable under the contract in para 4 of its writ petition No 179 of 1970 filed in Delhi High Court
Alternatively Counsel contended that even assuming a that the promissory notes are not an in severable and inextricable part of the Contract b that the obligation arising under the notes is totally different from the one arising under the Contract and c that the notes are in discharge of the obligation to make payment under the Contract all of which are strongly denied the three claims would still be covered by the Arbitration Clause which is of the widest amplitude for according to him it would be erroneous to determine whether a claim arises out of or in relation to the Contract by looking at the 465 cause of action on which the claim is based
That being the position Counsel submitted that the Court of Appeal was justified in coming to the conclusion that no prima facie case for injunction restraining arbitration proceedings had been made out by Renusagar and it had therefore rightly vacated the ad interim injunction and stay ed Renusagar s suit
It will be convenient to deal with the second question raised by counsel for the appellants in these appeals first namely whether on merits the three claims referred by GEC to the Court of Arbitration of ICC are beyond the scopepurview of the arbitration clause being Article XVII contained in the Commercial Contract IGE 9584  The answer to this question must depend upon a what disputes are covered by the arbitration agreement and b what is the real nature of these claims under the reference
Aspect a Obviously depends upon the language used in the arbitration agreement whose construction would be relevant for deciding both the questions i whether it embraces even questions of its existence validity and effect scope particularly the last which bears on the arbitrability of the three claims and ii whether the three claims fall within its scope or purview in other words is the language of the arbitration agreement wide enough to cover either of the questions or both
The arbitration clause in the Commercial Contract has already been set out in extenso in the earlier part of the judgment and the relevant words thereof are  any disagreement arising out of or related to this contract shall be finally settled in accordance with the Arbitration Rules of the International Chamber of Commerce
It may be stated that though the relevant rules of ICC particularly Rules 83 and 84 in terms confer jurisdiction upon the arbitrations to decide questions as to the existence or validity of the arbitration agreement contained in the commercial contract Counsel for GEC principally relied upon the language used in the aforesaid arbitration clause contained in the Contract itself for contending that it was of widest amplitude and would cover both the questions i and ii
According to him the English Courts as well as this Court have held that the words under the contract are wide but the words arising out of the contract are still wider and the words relating to or in relation to in respect of or in connection with or concerning the contract have the widest possible content
In view of the authorities to which we were referred we find considerable force in this contention of Counsel for GEC 466 In Govt
of Gibralter vs Kenney  Anr1 the arbitration clause covered  any dispute or difference which shall arise or occur between the parties hereto in relation to any thing or matter arising out of or under this agreement  and Sellers J has observed at page 26 of the Report that the distinction between matters arising out of and under the agreement is referred to in most of the speeches in Heyman vs Darwins Ltd and it is quite clear that arising out of is very much wider that under the agreement
In Heyman vs Darwins Ltd2 a contract for sole selling agency contained an arbitration clause in the following terms If any dispute shall arise between the parties hereto in respect of this agreement or any of the provisions herein contained or anything arising hereout the same shall be referred for arbitration in accordance with the provisions of the Arbitration Act 1889
 Though the main point decided by the House of Lords in the case was that where the parties were one in asserting that they had entered into a binding contract a subsequent repudiation thereof by one of them did not have the effect of annulling the arbitration clause contained in the contract each one of the law Lords dealt with the aspect of the wide language that had been used in the arbitration clause words being in respect of and the distinction between matters arising out of and under the agreement has been put in the clearest terms by Lord Porter at page 399 of the Report thus  In such a case case of repudiation the question of damage has still to be determined and the question whether there has been repudiation may be still in issue
Are these disputes under the contract I use the word under advisedly since expressions such as arising out of or concerning have a wider meaning  I think they are
 Incidentally while laying down the ratio in the case as indicated 467 above Viscount Simon LC also stated the law as to the circumstances under which an arbitration clause in a commercial contract would become unenforceable thus  If the dispute is whether the contract which contains the clause has ever been entered into at all that issue cannot go to arbitration under the clause for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission
Similarly if one party to the alleged contract is contending that it is void ab initio because for example the making of such a contract is illegal the arbitration clause cannot operate for on this view the clause itself also is void
 In Dhanrajmal Gobindram vs Shamji Kalidas  Co1 this Court has clearly taken the view that all questions which could be decided in an application filed under section 20 of the and such questions involve dealing with objections to the existence validity or effect ie scope of the agreement itself would be encompassed by a clause which contains the words arising out of or in relation to the contract
The relevant observations at pp
1040 41 of the Report run thus  We may dispose of here a supplementary argument that the dispute till now is about the legal existence of the agreement including the arbitration clause and that this is not a dispute arising out of or in relation to a cotton transaction
Reference was made to certain observations in Heyman vs Darwins Ltd In our opinion the words of the Bye law arising out of or in relation to contracts are sufficiently wide to comprehend matters which can legitimately arise under section 20
The argument is that when a party questions the very existence of a contract no dispute can be said to arise out of it
We think that this not correct and even if it were the further words in relation to are sufficiently wide to comprehend even such a case In Khardah Company Ltd vs Raymon  Co India Private Ltd2 this Court though ultimately it held that a dispute as to the validity of the underlying commercial contract containing an arbitration 468 clause was not one which the arbitrators were competent to decide and that when the contract was invalid every part of it including the arbitration clause was also invalid on question of construction of the expressions used in the arbitration clause did hold that the expressions used were wide enough to cover a dispute as to the validity of the contract
Act page 188 of the report Justice Venkatarama Aiyer has observed thus It cannot be disputed that the expressions arising out of or concerning or in connection with or in consequence of in relating to this contract occurring in clause 14 are of sufficient amplitude to take in a dispute as to the validity of the agreement dated September 7 1955
As observed by Lord Porter in Heyman vs Darwins Ltd supra although as a rule the arbitrator cannot clothe himself with jurisdiction the question of his jurisdiction must ultimately depend on the wording of the Arbitration Clause
At page 392 of the Report the learned law Lord has observed thus I think it essential to remember that the question whether a given dispute comes within the provisions of an arbitration clause or not primarily depends on the terms of the clause itself
If two parties purport to enter into a contract and a dispute arises whether they have done so or not or whether the alleged contract is binding on them I see no reason why they should not submit that dispute to arbitration
Equally I see no reason why if at the time when they purport to make the contract they foresee the possibility of such a dispute arising they should not provide in the contract itself for the submission to arbitration of a dispute whether the contract ever bound them or continues to do so
They might for instance stipulate that if a dispute should arise whether there had been such fraud misrepresentation or concealment in the negotiations between them as to make an apparent contract voidable that dispute should be submitted to arbitration
It may require very clear language to effect this result and it may be true to say that such a contract is really collateral to the agreement supposed to have been made but I do not see why it should not be done
 469 As an instance of a clause held to be wide enough to include a determination of the ambit of the arbitrator s authority the learned law Lord cited the decision in Willesford vs Watson1
In that case a mining lease contained an agreement to refer the disputes between the lessors and lessees to arbitrators or their umpire and the arbitration clause was very widely worded so as to include inter alia any dispute touching these presents or any clause or matter or the thing herein contained or the construction hereof in other words a dispute between the parties as to whether the instrument according to its true construction did or did not warrant a particular thing to be done thereunder was referable to and within the scope and authority of the arbitrators and at page 477 of the Report Lord Selborne LC observed which observations have been quoted with the approval by Lord Porter in Heyman vs Darwins Ltd thus It struck me throughout that the endeavour of the Appellants has been to require this Court to do the very thing which the arbitrators ought to do that is to say to look into the whole matter to construe the instrument and to decide whether the thing which is complained of its inside or outside of the agreement
 Finally the Court of Appeal held that the Court would not decide but would leave it to the arbitrators to decide whether the matter in dispute between the parties was within the agreement to refer and stayed the suit
In Jawahar Lal Burman vs Union of India1 while dealing with the scheme of sections 31 32 and 33 and as also the scope of the section 33 of the this Court has noted and recognised the distinction between the existence or validity of the arbitration agreement on the one hand and its effect scope on the other though in ss312 32 and 33 all the three clubbed or spoken of together
At page 777 of the Report the Court has specifically said that the effect of an arbitration agreement is treated as distinct from the existence of the agreement and has further observed that an application to have the effect of an arbitration agreement determined can be made provided the existence of the agreement is not in dispute
 It is true that this distinction been has noted for purposes of procedural aspects arising under the three sections but the several 470 authorities discussed above
Particularly Heyman vs Darwins Ltd and Willesford vs Watson which has been digested and annotated at two places in Russel on Arbitration at pp91 and 171 have made the distinction substantively
In Balabux Agarwalla vs Sree Luchminarain Mfg Co1 Das J has clearly envisaged the possibility of disputes as to the existence validity or effect of an arbitration agreement being properly referred to the arbitration of an arbitrator by means of a collateral or subsequent agreement between the parties and the learned Judge has pointed out that there was nothing in the scheme of ss31 or 33 of the to indicate that such disputes can never form the subject matter of an arbitration agreement or must always be decided by the Court as opposed to an arbitrator
In Waverly Jute Mills Co vs Raymon  Co2 at p224 of the Report the following statement of law appears A dispute as to the validity of a contract could be the subject matter of an agreement of arbitration in the same manner as a dispute relating to a claim made under the contract
But such an agreement would be effective and operative only when it is separate from and independent of the contract which is impugned as illegal
Where however it is a term of the very contract whose validity is in question it has as held by us in Kharda Co Ltd case no existence apart from the impugned contract and must perish with it Four propositions emerge very clearly from the authorities discussed above 1
Whether a given dispute inclusive of the arbitrator s jurisdiction comes within the scope or purview of an arbitration clause or not primarily depends upon the terms of the clause itself it is a question of what the parties intend to provide and what language they employ 471 2
Expressions such as arising out of or in respect of or in connection with or in relation to or in consequence of or concerning or relating to the contract are of the widest amplitude and content and include even questions as to the existence validity and effect scope of the arbitration agreement
Ordinarily as a rule an arbitrator cannot clothe himself with power to decide the questions of his own jurisdiction and it will be for the Court to decide those questions but there is nothing to prevent the parties from investing him with power to decide those questions as for instance by a collateral or separate agreement which will be effective and operative
If however the arbitration clause so widely worded as to include within its scope questions of its existence validity and effect scope is contained in the underlying commercial contract then decided cases have made a distinction between question as to the existence and or validity of the agreement on the one hand and its effect scope on the other and have held that in the case of former those questions cannot be decided by the arbitrator as by sheer logic the arbitration clause must fall along with underlying commercial contract which is either non existent or illegal while in the case of the latter it will ordinarily be for the arbitrator to decide the effect or scope of the arbitration agreement ie to decide the issue of arbitrability of the claims preferred before him
At this stage however we are concerned with only the first three propositions mentioned above about which no serious dispute was raised by Counsel for Renusagar
We are conscious that Counsel for Renusagar have strongly disputed the correctness of proposition No 4 above but we propose to deal with their caveat against it together with the authorities relied upon by them in support thereof later
At this stage it will suffice to observe that since the parties to the underlying Commercial Contract here have used the expressions arising out of or related to this contract in the arbitration clause contained in the Contract there can be no doubt that the parties clearly intended to refer the issue pertaining 472 to the effect scope of the arbitration agreement to the Court of Arbitration of ICC in other words the issue about arbitrability of the three claims under reference has been referred
Turning to aspect b which is really the crux of the matter on merits we shall have to ascertain the precise nature of the three claims in order to determine whether they fall within the arbitration clause which uses expressions of the widest possible amplitude and content
While narrating the chronological events in the earlier part of our judgment we have indicated what these three claims are and how they have arisen
The three claims are a 21 million US dollars being the Unpaid Regular Interest b US  78415184 being the Delinquent Interest and c 41 million US dollars being the Compensatory Damages
As explained earlier the first claim represents the quantum of 73 of the regular interest which was wrongly deducted and wrongly withheld and retained by Renusagar from 1970 onwards allegedly for payment of income tax notwithstanding the Delhi High Court s judgment in effect retrospectively restoring the tax exemption granted in favour of GEC the second claim represents interest claimed by GEC on account of the delay that occurred in the payment of four instalments of purchase price together with interest on their due dates as per the original Schedule of Payment while the third claim is by way of compensation for illegally and wrongfully retaining and enjoying the use of the first two funds by Renusagar and depriving GEC the use thereof for 12 long years
Whereas Renusagar has contended that none of these claims falls within the purview of the arbitration clause GEC has claimed that all of them do within the wide language of that clause
As regards the first two claims Counsel for Renusagar have pointed out that admittedly the first claim substantially approx 80 and the second claim entirely are for interest due after June 30 1967 ie after 30th month from the Contract Effective Date and according to Counsel since the underlying Commercial Contract IGE 9584 for supply and sale of goods and services contains no obligation to pay any interest after June 30 1967 and since only the promissory notes provide for payment of such interest after June 30 1967 these two claims do not arise out of the contract nor are they in relation thereto but arise under the promissory notes and hence fall outside the scope of arbitration clause
Counsel further urged that the promissory notes executed by Renusagar were in complete discharge of obligation to pay price and interest 473 thereon under the Contract and since these notes constitute independent and separate contracts by themselves the liability arising thereunder cannot be regarded as any arising out of the Contract or in relation thereto and in this behalf strong reliance was placed by Counsel on the fact that in its Notice of intention to arbitrate GEC has described these claims as arising under the promissory notes
Counsel pointed out that Article III of the Contract provides for payment of the total purchase price in three modes the third mode being by executing promissory notes and urged that since the requisite promissory notes were executed by Renusagar these notes must be regarded as having been executed in the complete discharge and satisfaction of the obligation under the Contract and that the sole obligation which survives since after the execution of the notes is the one which arises under the notes
In support of this contention counsel relied upon two decisions of this Court namely 1 Ms
Ogale Glass Works Ltd case where the posting of cheques by a purchaser by way of remitting the bills payable to the seller was held to amount to payment that is in discharge of the obligation to pay the price for goods purchased and 2 HP Gupta vs Hira Lal where the posting of a dividend warrant cheque by a company at Delhi for despatching it to a shareholder at his registered address which was Meerut as per article 132 of the Articles of Association was deemed as payment to the shareholder in discharge of the company s obligation and a criminal complaint for the alleged failure to discharge the obligation against the company properly lay in the Court of Delhi Magistrate
Counsel also relied on two important factors a unconditional nature and b negotiability of the promissory notes both requirements of article III 3 a of the Contract as destroying the arbitrability of the claims thereunder the contention being that if parties agreed that the balance price of 90 should be paid by executing unconditional negotiable promissory notes the parties could never intend to make the claims arising thereunder arbitrable
In support of this contention Counsel strongly relied on certain observations of Lord Wilberforce in NOVA Jersey Knit Ltd vs Kammgarn Spinnerei to the effect that if bills of exchange were to contain an arbitration clause they would not be valid bills as also on Byles on Bills of Exchange 25th Edn
at p 10 where the above observation in that case has been digested
Reference was also made to Albert Jan Van Den Berg s treatise New York Convention of 474 1958 Towards a Uniform Judicial Interpretation  wherein at pp
147 148 the learned author has made a reference to this Nova Jersey case with his own comments on how the Court of Appeal and the House of Lords have differed on the question whether there can be said to be an arbitrable dispute in regard to a bill of exchange the former holding that there was in the case a dispute as to the liability on the bills of exchange the dispute being whether or not the bills should be paid having regard to the cross claim to be decided in arbitration and the latter holding that there was none as English law clearly did not allow reliance on unliquidated cross claims to set off a claim on a bill of exchange and on that basis the House of Lords by majority held that the action on the bills of exchange should not be stayed
Reliance was also placed on three decisions of Asian High Courts in Bihari Diwan Singh vs Jaffe  Sons Dhiraj Lal vs Sir Jacob Behrans  Sons and Ms Vasanji Navj vs KPC Spinners in all of which more of less the same view has been taken that when a suit on a negotiable instrument issued in payment of price of goods sold under a contract and accepted by the seller is brought the action should not be stayed because of the arbitration clause contained in the original commercial contract in the last case the Madras High Court has observed that even if the suit was traced to the original contract and the plaint referred to antecedent facts which gave arise to the issue of the cheques by the defendant in favour of the plaintiff the arbitration clause could not come into play as the suit was on dishonored cheques and there was no dispute as regards the quality of the goods or quantum of the sale consideration
It is obvious that this last part of Counsel s submission may hold good only if these two claims are held to arise solely under the promissory notes and that the notes are held to be in complete discharge of the obligation under the Commercial Contract and constitute independent and separate contracts by themselves but not otherwise
As regards the third claim Counsel urged a two fold contention
First that the claim obviously arises in tort out of wrongful retention of monies under the first two claims for long 12 years and Renusagar is being saddled with this liability in its capacity as a tort feaser stake holder or constructive trustee and hence is not 475 covered by the arbitration clause and secondly that if the first two claims are not covered by the arbitration clause this claim would also fall outside its purview
It was pointed out that it cannot be said to be any incidental claim for interest because compensation is claimed at the market rate of 18 per cent
In support of this contention Counsel relied upon two decisions namely 1 Monro vs Bognor Urban District Council where the Court of Appeal took the view that where the action brought was for damages for fraudulent mis representation and referred to matters wholly outside the powers of the arbitrator with which he could not possibly deal the defendants could not get the action stayed because it could not be said that the dispute was upon or in relation to or in connection with the contract and 2 Ghewarchand vs Shiva Jute Bailing Ltd where the Calcutta High Court has held that where the suit was wholly based on tort then that action was not to be considered to be in relation to or in connection with a contract merely because it was shown that had there been ever no contract there would not have been any cause of action and what the Court had to look into was what the substance of the plaint was and not how the claim was framed
For the reasons which we shall presently indicate we are unable to accept any of the above submissions urged by Counsel for Renusagar
As regards the first two claims in the first place it is not possible to hold that the Commercial Contract does not contain any obligation to pay interest on the unpaid purchase price after June 30 1967 or that the obligation to pay such interest after that date is to be found only in the promissory notes
Admittedly interest on the purchase price at the agreed rate up to June 30 1967 was capitalized and included in the principal amount of each of the instalments represented by the concerned promissory note as mentioned in the Schedule of Payments given in article III A 3 b of the Contract and the question is whether the obligation to pay further interest after that date till payment is provided for only in the promissory notes or also in the contract
Undoubtedly the form of the promissory note attached as Exhibit B  to the Contract as also the promissory notes that were actually executed clearly contain a recital that Renusagar Promises to pay to GEC interest thereon ie on the capitalized principal from June 30 1967 semi annually at the rate of 6 12  per annum on the last day of June and 476 December in each year until paid
But Counsel for GEC has in our opinion rightly relied upon two provisions in the Contract which clearly show that the obligation to pay such interest after June 30 1967 till payment has been provided for by the Contract
Article III A 3 c relevant portion runs thus The notes shall be prepared substantially in the form shown in the attached Exhibit B  entitled Promissory Note  and shall bear interest at the rate of 6 12 per annum on the outstanding principal balance commencing thirty30 months after Contract Effective Date   It is no doubt true that the promissory notes executed by Renusagar recited the obligation to pay future interest after June 30 1967 till payment but obviously the promissory notes incorporated such obligation therein because of the aforesaid provision in article III A 3 c
The aforesaid sub clause in the Contract itself says that the notes shall bear interest at the rate specified on the outstanding principal balance after June 30 1967 in other words it is the Contract which provides for interest being payable on the outstanding principal balance after June 30 1967
Counsel for Renusagar however argued that the contract and aforesaid clause merely provide for the execution of promissory notes which it is provided shall bear interest after June 30 1967 and the argument proceeded further to say that if Renusagar had failed to executive promissory notes as required ie bearing interest after June 30 1967 GEC would not have become entitled to receive or claim interest after June 30 1967 but would have had only a right to call upon Renusagar to execute such pro notes and or two claim damage for failure to fulfil contractual obligations
It is impossible to accept this argument
The question is not what rights GEC would have had on Renusagar s failure to execute the promissory notes as required but the question is what the contract provides for
It cannot be disputed that the aforesaid sub clause in the Contract provides for not merely the execution of promissory notes but that the promissory notes would also bear interest after June 30 1967
Further the very fact that the failure of Renusagar to execute promissory notes as required of course as required by the Contract would have conferred a right on GEC to call upon Renusagar to execute such notes also shows that the obligation to pay interest after June 30 1967 till payment has been provided for by the contract
477 Article XIV B which deals with the topic of taxes and proposed exemption from income tax to be obtained by GEC relevant portion runs thus Seller intends to apply to the Central Government of India for exemption from income tax on the interest income including capitalized interest and interest thereon received by seller on the principal amounts of the promissory notes
Purchaser will assist Seller in expediting Seller s application for exemption and will furnish such information in support thereof as may be required by Seller or the Central Government of India  The above provision clearly shows that the parties to the contract were contemplating to obtain from the Government of India income tax exemption on the interest income which GEC was going to receive from Renusagar under the Contract and the clause indicates the things each party was required to do in that connection but the important aspect of the provision is that the interest income  on which tax exemption was being sought is said to include capitalized interest and interest thereon that is to say interest on the amounts of the promissory notes which included capitalized interest which obviously means further interest on outstanding principal balance under the notes from June 30 1967 onwards till payment
In our view these provisions which are to be found in the contract clearly show that the promissory notes are not sole and exclusive repository of GEC s right to claim and receive future interest on unpaid price after June 30 1967 but that the contract itself provides for the obligation to pay such interest after that date till payment
Reference was made to the fact that the Bank Guarantee endorsed on each promissory note is restricted only to the payment of principal and interest on the note as per its terms and does not extend to or cover any residuary payment obligation contained in the Contract de hours the promissory note
But this is as it normally should be
Since the bank guarantee is in connection with and endorsed on the promissory note it would ordinarily refer to the obligations arising thereunder and not to any obligation arising under any other document and the question whether the Contract contains such obligation to pay future interest must depend upon its contents and not upon what is not to be found in the bank guarantee
Similarly counsel for Renusagar also referred to the fact that GEC 478 has filed a suit Suit No 7861982 against the UCO Bank in the Calcutta High Court to recover 21 million US Dollars for the interest as being due under the promissory notes read with the guarantee
But here again that fact is neither here nor there because the suit against the UCO Bank has to be on the promotes read with the guarantee the Contract not being a document to which UCO Bank is a party
But things will have to be seen in different perspective when claims are made by GEC against Renusagar and in that behalf it is the substance of GEC s pleading Notice of Intention to Arbitrate that will have to be looked into and not how the claims described therein
True at one place in the Notice of Intention to Arbitrate the two claims are in fact only the first claim of 21 million US Dollars is said to be on the promissory notes but much cannot be made of that fact because at the commencement of that Notice the subject matter thereof is stated as Re Interest payable under the Contract No IGE 9584 between GEC and Renusagar and the substance of the entire pleading on careful scrutiny shows how the first two claims have arisen under the Contract and how under the terms thereof and in the correspondence their amounts got adjusted and quantified at certain figures and it is also clear that the reference to the Contract is not way of any antecedent or historical fact
It is therefore clear that the Contract contains the obligation to pay future interest from June 30 1967 onwards till payment and that these two claims have been preferred by GEC before the Court of Arbitration of ICC as arising not merely out of but under the Contract
Secondly the promissory notes on the terms of the Contract cannot be regarded as amounting to payment in discharge of the obligation arising under the Contract
It was submitted that since it is one of the modes of payment indicated in the Contract the execution of the notes should be held to be payments by way of discharging the obligation under the Contract
The snap answer to this submission is that since the Contract also indicates the opening of a Letter of Credit as yet another mode of payment the mere fact of the Letter of Credit having been opened by Renusagar in a Bank in New York City valid for 18 months will have to be regarded as actual payment which is hardly arguable
But the real answer to the submission is that it is always a question of intention of the parties whether a negotiable instrument taken on account of a debt operates as an absolute discharge of the debt or not
In Bhashyam  Adiga s treatise on the Negotiable Instruments Act 14th Edn the law on 479 this aspect has in our view been correctly summarised at page 774 thus It is always a question of intention of parties whether a bill or a promissory note or a cheque taken on account of a debt operates as an absolute discharge of the debt or only as a conditional payment of it
Generally speaking a bill or note can never go in discharge of a debt unless it is a part of the contract that it shall be so for a mere promise to pay cannot be regarded as an effective payment 
This rule may also be based on the general principle of law that one simple executory contract does not ordinarily extinguish another the presumption in such cases is that the bill or promissory note is taken only as a conditional payment
 In Commissioner of Income Tax vs Kameshwar Singh of Darbhanga the Privy Council has enunciated the legal principle very clearly at page 115 of the Report thus A debtor who gives his creditor a promissory note for the sum he owes can in no sense be said to pay his creditor he merely gives him a document or voucher of debt possessing certain legal attributes
So far then as this item of Rs 1734596 represented by a promissory note given to the assessee by his debtor is concerned the assessee did not receive payment of any taxable income from his debtor or indeed any payment at all
 The aforesaid statement of law enunciated by privy Council has been quoted with approval by the Bombay High Court in Keshav Mills Co Ltd vs Commissioner of Income Tax
It was a case where cheques and hundis were issued in payment of price for goods sold and delivered and the question was whether such cheques and hundis amounted to payments resulting in unconditional discharge of the liability to pay the price and the Division Bench speaking through Chagla CJ observed thus Now I should have thought that ordinarily the payment of debt by a cheque never results in the discharge of the 480 debt
The cheque merely represents an order by the drawer of the cheque to his banker to pay the amount to the person named in the cheque and till that payment is made the debt is not discharged
Therefore the sending of the cheque as I said before ordinarily is not an unconditional discharge of the liability
The same would be the position with regard to the hundis
But I can well imagine a case where there may be an arrangement between a creditor and a debtor that the receipt of a cheque or a hundi by a creditor may result in an unconditional discharge of the debt and in the event of the cheque or hundi not being honoured the creditor would have no right to sue on the original cause of action but only on the cheque or the hundi
That would be a pure question of fact
The Privy Council has taken the same view of the law as is to be found in Commissioner of Income Tax v Kameshwar Singh supra It may be stated here that even in the two decisions of this Court on which Counsel for Renusagar have placed reliance the aforesaid principle of law has been accepted but all that has happened is that each case turned on its own facts and special circumstances on the basis of which this Court held that the parties had intended to and agreed to accept and treat the posting of the instruments cheques in one case and dividend warrant in the other as actual payment in discharge of the original obligation
For instance in Ogale Glass Works Ltd case supra the question that arose for determination on this aspect of the matter was whether the assessee seller could be said to have received income sale proceeds in British Indian within the meaning of sec41a of the Indian Income Tax Act 1922 when the Government of India the purchaser of goods had sent the sale proceeds by means of cheques drawn and posted in Delhi but received by the assessee in Aundhan Indian State  The answer to the question depended upon whether the posting of cheques in Delhi amounted to payment to the assessee and the Court held that it did by relying upon four or five special circumstances that obtained in the case
Apart from the fact that clause 15 of the Contract itself provided for payment of the sale proceeds by cheques the Court noticed a that in the bills submitted by him to the Government the assessee has expressly asked for payment by cheques b that as per the normal course of business usage parties intended that remittances should be by post c that 481 the assessee had by making a request in that behalf constituted the post office his agent d that accordingly the Govt
had sent cheques in payment of the bills by post e that the assessee had sent formal stamped receipts only after the receipt of the cheques and not in advance along with the bills submitted by him and f very importantly the drawer of the cheques was the Government of India and the drawer was the Reserve Bank of India for whose solvency there could be no apprehension at all in the mind of the assessee
It was in these circumstances that the Court came to the conclusion that the parties had intended to treat the posting of cheques as payment
In HP Gupta vs Hiralal supra the question was whether the posting of a dividend warrant cheque by the Company at Delhi where its Registered Office was situated for dispatching it to the shareholder at his registered address which was Meerut amounted to payment to the shareholder in discharge of the Company s obligation to pay the declared dividend and this Court held that it did in view of sec
205 5 of the Indian and article 132 of the Articles of Association of the Company as both the said provisions entitled the Company to pay the dividend either in cash or by posting a cheque or warrant at the registered address of a shareholder
The Court pointed out that Art132 which constituted an agreement between the Company and its shareholder had the effect that if the warrant cheque was sent by post at the latter s registered address that will be equivalent to payment
Bearing the aforesaid general principle in mind that a bill or a promissory note can never go in the discharge of a debt unless it is a part of a contract that it shall be so it will have to be seen whether the promissory notes executed by Renusagar in this case were intended to operate as payments by way of absolute discharge of the obligation under the Contract or only as conditional payments
In our view the terms of the Contract far from showing that these were payments in discharge of the original obligation clearly indicate that the parties had intended that these were to operate as conditional payments
If article III of the Contract which deals with the topic of Payment of price for the sale of goods and services is carefully analysed the following factors emerge very clearly a that the pro notes are not expressed to be payments in fact it is in terms stated that the total contract base price shall be paid by purchaser in lawful money of the USA article III A and surely promissory notes are not lawful money of USA 482 b that because the Contract so provides even the pro notes also recite that the principal and interest thereunder are payable in lawful money of the USA c that article III A 3 which deals with pro notes provides for payment of the remaining 90 of the price in accordance with the following Schedule of Payments and expressly states that the obligation to make such payments is to be evidenced by four series of purchaser s unconditional negotiable promissory notes which clearly shows that the pro notes are not payments but are intended merely to be the evidence of the obligation to pay the price d that though stated to be unconditional and negotiable perhaps so between the drawer and subsequent assignees in case of negotiation as between the seller and the purchaser these have been made subject to several conditions such as 1 the amounts thereof were payable only on the assumption that deliveries of items of equipment were completed within 15 months of Contract Effective Date and interest at the rate of 6 12 was to become 6 on receipt of income tax exemption article III A3 b ii these were to lie in Escrow Arrangement to be released to the seller synchronizing with the stated progress of supply of goods according to certain formulae article III D
iii these were to be replaced by fresh Notes depending on receipt of income tax exemption article
III A3f or price modification article
III D  iv each one contains a default clause saying upon default in the prompt and full payment the principal or of the interest on this Note when due all of the notes in each and every series together with interest to the date of payment shall immediately become due and be payable and the option and demand of the holder thereof Having regard to the aforesaid factors that emerge from the various terms specified above it is very clear that the execution of the promissory notes was not intended to nor did it amount to payment by way of discharging the obligation under the contract but the notes were clearly intended to operate as conditional payments
Thirdly the very factors and circumstances enumerated above 483 in connection with the promissory notes and particulary the fact that these notes were as between the seller and the purchaser subject to several conditions leading to variation and adjustment and replacement and the default clause contained in each clearly indicate that these were not intended to constitute or separate contracts by themselves but that they were a part and parcel of one integrated transaction embodied in the contract in fact the aspects mentioned in d above clearly show that the promissory notes were and are meant to be governed at all times by various other terms of the Contract and could be modified and substituted under given conditions as set out in the Contract
Hence it is impossible to accede to the proposition that a dispute of nonpayment of interest on the instalments whether regular or delinquent is not a dispute relating to the Contract
 In fact as stated earlier both the claims 21 million US dollars and US 78415184 arise under the Contract and have been preferred by GEC before the Court of Arbitration of ICC expressly on that basis and not under the promissory notes
In view of this conclusion of ours it is unnecessary to deal with the further submission of Counsel for Renusagar based on the so called factors of unconditional nature and negotiability of the promissory notes as destroying the arbitrability of the claims thereunder as also the case law relied upon in support thereof
Similarly this conclusion of ours also makes it unnecessary for us to deal with the alternative submission made by counsel for GEC that these claims would still fall within the wide expressions occurring in the Contract even on the assumption that the promissory notes are severable from the Contract that the obligation arising thereunder is different from the one under the Contract and that these notes are in payment of the obligation to pay the price under the Contract
As regards the third claim of compensatory damages it is true that Renusagar is being saddled with this liability as tort feaser a stake holder andor a constructive trustee but in our view that aspect by itself will not justify a conclusion that the same is not covered by the arbitration clause because the question is not whether the claim lies in tort but the question is whether even though it has lain in tort it arises out of or is related to the Contract that is to say whether it arises out of the terms of the Contract or is consequential upon any breach thereof
As explained earlier this claim is based on and is consequential upon and by way of corollary to the non payment of the two detained amounts by Renusagar to GEC in breach of the terms of the Contract
In other words it is 484 clear that before adjudicating upon this claim the adjudicating authority will have first necessarily to adjudicate upon first two claims preferred by GEC and only if it is found that GEC is entitled to receive that first two amounts which ought to have been paid by Renusagar under the terms of the Contract but which Renusagar had failed to pay that this third claim could if at all be allowed to GEC
In the real sense therefore this claim is directly closely and inextricably connected with the terms and conditions of the Contract the payments to be made thereunder and the breaches thereof and as such will have to be regarded as a claim arising out of or related to the Contract
As we shall point out presently Court in one of its decisions has laid down the test for determining the question in such cases and the test is whether recourse to the contract by which both the parties are bound would be necessary for the purpose of determining whether the claim in question was justified or otherwise and this test as indicated above is clearly satisfied with regard to the third claim in the instant case
We may at this stage refer to a passage in Russel on Arbitration and a few decided cases which fortify our aforesaid conclusion
In Russel on Arbitration 20th Edn the following statement of law occurs at page 90 Claims in tort may be so intimately connected with a contract that a clause of appropriate width designed primarily to make contractual disputes arbitrable will nevertheless render such claims in tort arbitrable as well
 In Woolf vs Collis Removal Service 1 the defendants had contracted to remove plaintiff s furniture and effects from London to their store in Marlow and there safely to keep and take care of them but according to the plaintiff the defendants had in breach of the Contract removed the goods to a different destination where some were lost and others damaged
Alternatively the plaintiff claimed that the goods were lost and damaged owing to the negligence of the defendants in using an unsuitable place in which to store them and guarding them inefficiently
The clause providing for arbitration ran If the customer makes any claims upon or counterclaim to any claim made by the contractors the same shall be referred to the decision of the two arbitrators
The question was whether the claim for damages was covered by this clause
The Court 485 of Appeal held that even if the claim in negligence was a claim in tort and not under the contract yet there was a sufficient close connection between that claim and the transaction to bring the claim within the arbitration clause
This authority clearly shows that even though a claim may not directly arise under the contract which contains an arbitration clause if there was sufficient close connection between that claim and the transaction under the contract it will be covered by the arbitration clause
In Astro Vencedor Compania Naviera SA of Panama vs Mabanaft G m b H1 the arbitration clause contained in a Contract of charter party ran any dispute arising during the execution of this charterparty shall be settled by two arbitrators one to be appointed by the Owners and the other by the charterers
The relevant charterers ordered the vessel to a Dutch port not named in the bill of lading whereby satisfactory bills of lading were not available in time and disputes arose as to unloading
By action of the relevant charterers the vessel was arrested and released on a bank guarantee
Later under a charter quite unconnected with the relevant charterers the vessel happened to be again in a Dutch port and was arrested again as a result of disputes as to the satisfactory nature of the original bank guarantee
The owners arbitrated a claim for damages in respect of each of the two arrests of the vessel
The charterers argued that these were claims in tort and outside the arbitrator s jurisdiction
The Court held that arbitrator had jurisdiction 1 over the first arrest as it was closely connected with the dispute under the contract and was indeed a direct consequence of a claim for damage under the contract and 2 over the second arrest as it was part and parcel of the original arrest
The decision of Sellers J in Government of Gibralter vs Kenney and Another supra has already been referred by us in the earlier part of our judgment in the context of the distinction made between matters arising out of and under the agreement and the learned Judge s view that the former expression is wider than the latter but that decision is relevant to the question which is now under consideration
In that case disputes arose concerning the first defendant s remuneration receivable from the plaintiff under a contract for services and one of the claims put forward by the first defendant was for a sum of money on a quantum merit basis for services rendered it being alleged that the agreement had ceased to have any application to those services
The disputes were 486 referred to the arbitration of second defendant under a clause which was very wide and covered  any dispute or difference which shall arise or occur between the parties hereto in relation to anything or matter arising out of or under this agreement
A question arose as to whether a claim based on quantum merit would fall within the arbitration clause and Sellers J held that it did observating as under  It is true that a quantum merit is a quasi contract and arises in a sense on an implied contract and not on any express agreement but in my view in the circumstances of this case although it may not be in all cases the quantum merit is an incident which arises out of the contract
It is not a remedy for breach or arising on frustration but it is an incident in my view which does arise as a consequence of the contract or arising out of  it
One has only to look at the pleadings at the points of claim and to visualise what is involved in the arbitration to see the close association between the written contract and the claim advanced in this way on a quantum merit
 In Alliance Jute Mills Co Ltd vs Lal Chand Dharanchand and Another1 disputes between the parties to a commercial contract were arbitrable under the bye laws of the East India Jute  Hessian Exchange Association and the relevant bye law ran thus  All matters questions disputes difference andor claims arising out of andor concerning andor in connection with andor in consequence of or relating to this contract shall be referred to arbitration     Under the commercial Contract Respondent No 1 had sold through a broker certain quantities of fibre to the appellant mill and after effecting delivery of the goods Respondent No 1 had submitted bills to the appellant mill again through the broker  the appellant mill however claimed reduction in price on account of shortage in weight and submitted claims in that respect
Since the price was not paid Respondent No 1 referred the claim to the arbitration of Bengal Chamber of Commerce and Industry
The appellant mill informed the Chamber of Commerce and Industry that it had filed a suit upon the whole of the subject matter of the reference and served a Notice under section 35 of the 
In suit so filed against Respondent No 1 and the broker apart from 487 the declaration sought that the broker had no claims against the appellant mill in respect of the Contract or in respect of the bills submitted by the broker for the price of goods sold and delivered the appellant mill had also claimed a decree for Rs 50000 as damages for the alleged libel published by respondent No 1 and the broker
In an application for stay of the suit under section 34 of the  one of the questions raised was whether the arbitration clause was wide enough to include the claim for damages for the alleged libel
The High Court held that the claim in damages for defamation arose out of and in connection with the non payment of the bills of respondent No 1 and in going into the question of tort the Court would necessarily have to go into the terms and conditions of the Contract relating to payment and that the claim in tort was directly and inextricably connected with the terms and conditions of the Contract and as such came within the scope of the arbitration clause which was wide enough to cover the same
In this view of the matter Court stayed the suit under s34 of the 
Lastly we would refer to the decision of this Court in Union of India vs Salween Timber Construction India Ors1 where the Court has laid down the test for determining the question whether the arbitrators would have jurisdiction to adjudicate upon a claim made by one of the parties to a Contract though not strictly arising under it
In that case a dispute arose between the appellant Union of India and the respondent regarding the supply of timber made by the respondent under a contract between the parties
One of the items in dispute was a claim by the respondent that there was an excess supply of timber to cover up possible rejection which should have been returned by the appellant with compensation for deterioration or that payment should be made for it as the market rate
The appellant contended that the terms of contract did not require the respondent to tender for inspection any quantity in excess of the contracted quantity that the claim was in detinue relating to an involuntary bailment and not in relation to anything done in the performance implementation or execution of the contract and therefore it was not a dispute arising out of the contractor in connection with the contract
Arbitration Clause in the contract covered any question or dispute arising under the contract or in connection with the Contract 
On the question whether the arbitrators had jurisdiction to adjudicate upon that claim this Court 488 relying upon its earlier decision in Ruby General Insurance Co Ltd vs Peary Lal Kumar1 held that the test for determining the question is whether recourse to the contract by which both the parties are bound was necessary for the purpose of determining whether the claim of the respondent was justified or otherwise and since it was necessary in the case to have recourse to the terms of the contract for the purpose of deciding the matter in dispute the matter was within the scope of the arbitration clause and the arbitrators had jurisdiction to decide it
As stated earlier since this third claim for compensatory damages is directly closely and inextricably connected with the terms and conditions of the Contract the payments to be made thereunder and the breaches thereof and since for adjudication thereof recourse to the Contract would be necessary it will have to be held that it is a claim arising out of and in any event related to the Contract
As regards the two decisions Monro vs Bognor Urban District Council supra and Ghewarchand Rampuria vs Shiva Jute Bailing Ltd supra relied upon by Counsel for Renusagar we would like to point out that both are distinguishable and each turned on its own facts
In the former case the contractor had filed a suit to recover damages for the fraudulent misrepresentation as also to have the contract declared void on the ground that his consent thereto had been obtained by fraudulent misrepresentation and in effect the Court of Appeal held that the alleged fraudulent misrepresentation was not a dispute upon or in relation to or in connection with the Contract and therefore the suit was not liable to stayed nor was the dispute liable to be referred to arbitration
In the latter case the suit was based wholly on tort and tort alone and the action complained of was totally unconnected with the Contract the High Court actually recorded a finding that the cause of action in the suit had no connection direct or indirect with the Contract itself and the reference to the Contract was only a link in the story to show how the goods came to be in the possession of the defendants and the claim was not based in any way on or related to the contract itself
In the final analysis the question as to whether a claim based on tort is a claim de hors the contract which contains the arbitration clause or is directly or inextricably connected with the contract has to be decided on the facts of each case and the language used in the arbitration clause 489 Having regard to the aforesaid discussion we are clearly of the view that all the three claims referred by GEC to the Court of Arbitration of ICC do arise out of and are related to the Commercial Contract in fact the first two claims arise under the Contract and squarely fall within the widely worded arbitration clause being article XVII contained in the Commercial Contract
It is also clear that the arbitration clause embraces even the question of its effect scope that is to say it embraces the issue of the arbitrability of the three claims
Questions whether in law namely the law of the Forum the arbitrators will have jurisdiction and power to decide the arbitrability of the claims or not and whether Renusagar s suit is liable to be stayed or not will be considered by us next but at this stage we are categorically negativing the contentions of Counsel for Renusagar that on merits the three claims are beyond the scope or purview of the arbitration clause or that the arbitration clause on its own language does not embrace the issue of arbitrability of the three claims
We shall now deal with the principal legal contention raised in support of these appeals by Counsel for Renusagar that under section 3 of the Foreign Awards Act 1961 having regard to its scope a suit in the nature of a petition under section 33 of the can never be stayed that GEC s Arbitration Petition No 96 of 1982 in that behalf is totally mis conceived and that no case has been made out for staying Renusagar s suit which is in the nature of a petition under section 33 of the 
In this behalf submissions of Counsel may be analysed thus  a That two decisions one of the Calcutta High Court in Balabux Agarwalla s case supra and the other of this Court in Gaya Electric Supply Co s case1 have settled the legal position under that a Court acting under section 34 is a Court of limited jurisdiction performing a limited function and that a petition under section 33 which raises issues regarding the existence validity or effect of an arbitration agreement cannot be stayed by invoking section 34 of that Act unless there be a fresh arbitration agreement to refer those very issues in regard to the previous arbitration agreement and therefore it should similarly be held that section 3 of the Foreign Awards Act which is similar to section 34 of the  cannot be 490 invoked to stay a suit which is in the nature of as
33 petition and Counsel pointed out that Renusagar s suit is precisely a suit of that nature wherein the effect scope of the arbitration clause contained in the commercial contract only has been put in issue and no relief on the merits of these claims is sought
b That Renusagar s suit is not a suit in respect of any matter agreed to be referred to arbitration as required by section 3 of the Foreign Awards Act and therefore the stay sought by GEC should be refused in other words Counsel urged that the phrase in respect of my matter agreed to be referred arbitration occurring in section 3 should be construed to cover only disputes or claims on merits referred to the arbitrators and not issues as to the existence validity or effect of the arbitration agreed particularly its scope that is the arbitrability of the claims and for placing such narrow construction on the relevant phrase occurring in section 3 Counsel mainly relied on a decision of this Court in Shiva Jute Baling Ltd vs Hindley Co1 where this Court while construing section 35 in the context of section 33 and section 34 of the  has on the facts in the case held that there could be no identity of the subject matter under reference to the arbitrator and the subject matter of a section 33 petition that is to say the issues and prayers that from the basis of an application under section 33 could not be subject matter of the reference to the arbitrators  Counsel also relied upon three more decisions of this Court in Khardah Company s case supra Waverly Jute Mills  case supra and Ms RN Ganekar  Co s2 case where according to Counsel observations supporting the above view have been made
c That even of the assumption that arbitrability of the three claims is factually covered by the wide language of the arbitration clause in question here and that the suit is in respect of a matter agreed to be referred to the arbitration  in law that is to say under the law of the Forum being the Indian Law in the instant case the issue of arbitrability of the claims raised in the suit cannot be finally determined by the arbitrators but must rest with the 491 Court and therefore Renusagar s suit cannot be stayed under section 3  in this behalf Counsel urged that both English Law as well as Indian Law is the same the latter being the law of Forum here and does not allow questions of arbitrators  own jurisdiction to rest finally with the arbitrators and in support reliance was placed on a number of decisions English American and Indian particularly decision in Attorney General for Manitoba vs Kally  Ors1 Dalmia Dairy2 case Backer Auto Radio3 case Municipal Board vs Eastern UP Electric Supply Co Ltd  Ors4 Ms Jagan Nath Phool Chand vs Union of India  Ors5 R Prince  Co vs Governor General in Council6 Vallabh Pitti vs Narsingdas7 as well as certain passages in Russell on Arbitration 20th Edn
at pages 91 92 and 111 112 and Albert Jan Van Dan Berg s Treatise on New York Convention at pages 311 312
d That a stay if granted as sought by GEC would render Renusagar s suit dead for all practical purposes and therefore no such relief should be granted which will have the effect of finally determining the suit merely on a prima facie view or a pro tanto finding on the issue of arbitrability of the claims and in support reliance was placed on Strauss  Co s8 case
We shall examine each one of these submissions put forward to strengthen the main legal contention urged in the support of these appeals presently
At the out set we would like to observe that the answer to the question whether Renusagar s suit which is in the nature of a petition under section 33 of the could be stayed under section 3 of the Foreign Awards Act must necessarily depend upon a correct construction of the said section 3 and it is obvious that the provisions of 492 that section will have to be construed by keeping in mind the objective sought to be achieved by that Act and its scheme and not on the basis of similar or analogous provisions that are to be found in the or the manner in which such similar or analogous provisions have been construed by our Courts
The Statement of Objects and Reasons shows that the Act seeks to achieve speedy settlement of disputes arising from international trade through arbitration
The Act is a successor to the Arbitration Protocol  Convention Act 1937
The earlier Act was intended to effectuate the purposes of Geneva Convention of 1927  it was however felt that the Geneva Convention hampered the speedy settlement of disputes through arbitration and hence no longer met the requirements of the international trade due to certain defects and therefore in order to remedy inter alia those defects a craft Convention was prepared by the International Chamber of Commerce which was considered by the United Nations Economic and Social Council in consultation with the Governments of the various countries and nongovernmental organisations and finally a new International Convention on the Recognition and Enforcement of Arbitral Awards was adopted at New York on 10th June 1958
The Convention was duly ratified by the Government of India and was deposited with the Secretary General of the United Nations on 13th July 1960
The present Act was enacted as its long title indicates to give effect to the said New York International Convention on the Recognition and Enforcement of Foreign Arbitral Awards to which India is a party
Article II of the Convention provides for recognition by Contracting States of agreements including arbitral clauses in writing by which the parties to the agreement undertake to submit to arbitration and or any differences which have arisen or which may arise between them in respect of defined legal relationship whether contractual or not concerning a subject matter capable of settlement by arbitration and section 2 of the Act defines the expression foreign award accordingly ie closely following the language of Article II of the Convention
It is obvious that since the Act is calculated and designed to subserve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration any expression or phrase occurring therein should receive consisting with its literal and grammatical sense a liberal construction
Moreover an examination of the relevant provisions of this Act and the will show that the schemes of the two Acts are not identical and as will be pointed out at the appropriate stage there are various differences which have a material bearing on the question under consideration and as such 493 decisions on similar or analogous provisions contained in the may not help in deciding the issue arising under the Foreign Awards Act because just as the is a consolidating enactment governing all domestic awards the Foreign Awards Act constitutes a complete code by itself providing for all possible contingencies in relation to Foreign awards made pursuant to agreements to which Article II of the Convention applies
With these preliminary observations we now turn to the question of proper construction of section 3 of the Foreign Awards Act
Section 3 of the Foreign Awards Act 1961 as amended by Act 47 of 1973 omitting unnecessary words reads as under  3
Stay of proceedings in respect of matters to be referred to arbitration
Notwithstanding anything contained in the  or in the Code of Civil Procedure 1908 if any party to an agreement to which Article II of the Convention set forth in the Schedule applies commences any legal proceedings in any court against any other party to the agreement in respect of any matter agreed to be referred to arbitration in such agreement any party to such legal proceedings may at any time after appearance and before filing a written statement or taking any other step in the proceedings apply to the Court to stay the proceedings and 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
It may be stated that prior to its amendment by Act 47 of 1973 the words in the old section 3 were  If any party to a submission made in pursuance of an agreement which were construed by this Court in VO Tractoroexport case as prescribing a requirement that there must be an actual reference made to the arbitrators before any party to the arbitration agreement could invoke the section and Parliament immediately stepped in and amended the section by substituting in their place the words  if any party to an agreement thereby facilitating the stay of legal proceedings even before any actual reference is made and compelling speedy settlement of disputes through agreed arbitration
On a plain reading of the section as it now stands 494 two things become very clear
In the first place the section opens a non obstante clause giving overriding effect to the provision contained therein and making it prevail over anything to the contrary contained in the or the Code of Civil Procedure 1908
Secondly unlike s 34 of the which confers a discretion upon the Court the section uses the mandatory expression shall and makes it obligatory upon the Court to pass the order staying the legal proceedings commenced by a party to the agreement if the conditions specified therein are fulfilled
The conditions required to be fulfilled for invoking sec
3 are  i there must be an agreement to which Article II of the Convention set forth in the Schedule applies
It is not disputed that this is so in the instant case  ii a party to that agreement must commence legal proceedings against another party thereto
It is again not disputed that Renusagar and GEC are the two parties to the arbitration agreement and that Renusagar has commenced legal proceedings against GEC by filing suit No 832 of 1982  iii the legal proceedings must be in respect of any matter agreed to be referred to arbitration in such agreement
The question whether this condition is fulfilled here needs to be decided  iv the application for stay must be made before filing the written statement or taking any other step in the legal proceedings
Admittedly this condition is fulfilled  v the Court has to be satisfied that the agreement is valid operative and capable of being performed  this relates to the satisfaction about the existence and validity  of the arbitration agreement
In the instant case these questions do not arise  vi the Court has to be satisfied that there are disputes between the parties with regard to the matters agreed to be referred this relates to effect scope of the arbitration agreement touching the issue of arbitrability of the claims
It will have to be dealt with while considering the satisfaction of condition iii above
495 As stated above Counsel for Renusagar have urged that conditions iii and vi and not satisfied and hence stay of Renusagar s suit ought to be refused while according to Counsel for GEC all the conditions including these two have been fulfilled and it is obligatory upon the Court to stay the suit
Before dealing with the question whether conditions iii and vi are satisfied in this case or not we would briefly indicate how the schemes of the two Acts Foreign Awards Act and  materially differ on several aspects having a bearing on the points at issue
An examination of sections 3 4 and 7 of the Foreign Awards Act in juxtaposition with sections 32 33 and 34 of the Arbitration Acts brings out these differences
Under section 32 of the Arbitration Acts suits to challenge the existence or validity of an arbitration agreement or award as also suits to have the effect scope of an arbitration agreement determined are barred and such questions can be raised only by an application under section 33 of the Act whereas under the Foreign Awards Act there is no provision similar or akin to sections 32 and 33 and that is why a suit of the nature filed by Renusagar qua the arbitration agreement covered by the Convention is maintainable but by virtue of sections 3 and 7 the same purpose is served though by different procedure
Sections 3 and 7 read together disclose a scheme that so far as questions of existence validity and effect scope of the arbitration agreement are concerned the determination thereof by the arbitrators is also subject to the decision of the Court and this decision of the Court can be had either before the arbitration proceedings commence or during their pendency if the matter is decided by the Court in a section 3 petition as in the present case or can be had under section 7 after the award is filed in the Court and is sought to be enforced under section 6
True section 42 declares that a foreign award shall be treated as binding for all purposes  on persons as between whom it is made but that is subject to section 7 whereunder enforcibility thereof is made dependent upon satisfaction of certain conditions specified therein  for example under section 71aiii one of such conditions for enforcibility is that the award should not deal with questions not referred nor should it contain decisions on matters beyond the scope of the agreement
In effect section 3 of the Foreign Awards Act so to say combines in its own ambit both sections 33 and 34 of the  in other words questions regarding the existence validity or effect scope of the arbitration agreement which can be decided under section 33 of the are required to be decided under section 3 of the Foreign Awards Acts before a stay of egal proceedings contemplated therein could be granted and the 496 right to have legal proceedings stayed contained in section 34 of the is also to be found in the same section 3
Further the Foreign Awards Act has also taken cognizance of the possibility that there may not be section 3 petition at all the matter being directly proceeded before the arbitrators and the possibility of the arbitrators giving a decision on an issue not within their competence or jurisdiction and such cases section 7 contains a safe guard which prevents any such award from being made enforceable
Such being the scheme under the Foreign Awards Act we would reiterate our view that decisions of our Courts on similar or analogous provisions contained in the would not be of any help to decide questions arising under the Foreign Awards Act
For instance the view taken by the Calcutta High Court in Balabux Agrawalla s case supra and by this Court in Gaya Electric Supply Cos case supra that a Court acting under section 34 of the is a Court of limited jurisdiction performing a limited function and that a petition under section 33 cannot be stayed by invoking section 34 of that Act will be of no avail whatever in face of the express provisions contained under section 3 of the Foreign Awards Act which section as indicated earlier combines within its own ambit both sections 33 and 34 of the and those questions have to be decided by the Court before granting stay
Similarly the broad principle that an arbitrator has no power to determine questions of his own jurisdiction which include questions regarding the existence validity and effect ie scope of the arbitration agreement and that neither English Law nor Indian Law allows these questions to rest with the arbitrator for which Counsel for Renusagar have been contending and we shall deal with it later would be hardly applicable to any foreign award made under the Act
if the scheme of the Act emerging from a combined reading of sections 3 and 7 clearly shows that so far as the questions of existence validity and effect scope of the arbitration agreement are concerned the determination thereof by the arbitrators is subject to the decision of the Court and that this decision of the Court can be had under section 7 even after the award is made and filed in the Court but before it is made enforceable  section 7ai and iii show that the award can be challenged on these grounds which implies that the arbitrators have decided those questions while making their award
Turning now to the question whether in this case conditions iii and vi indicated above are satisfied or not we would like to observe that the two conditions are inter related and in substance bear upon the same aspects and therefore could be dealt with together
The main question is whether Renusagar s suit can be said to be respect 497 of any matter agreed to be referred to arbitration  On this Counsel for Renusagar put forward a two pronged submission
Initially it was urged that the arbitration clause in the Contract does not include within its scope the issue of arbitrability of the three claims and so the suit is not liable to be stayed but we have already negatived this part of the submission by holding that the language of the arbitration clause is wide enough to embrace the issue of the arbitrability of the claims
Now the submission is that the phrase in respect of any matter agreed to be referred to the arbitration occurring in section 3 should be construed as covering only the disputes or claims on merits which have been referred to the arbitrators and since Renusagar s suit merely raises the issue of arbitrability of those claims the suit cannot be said to be in respect of any matter agreed to be referred to arbitration in other words the submission is that the relevant phrase in section 3 should be given a narrow construction
In the first place there is nothing in the section which warrants the placing of such narrow construction on the relevant phrase
What matters are agreed to be referred to arbitration will depend upon what language is employed by the parties to the arbitration agreement and as we have indicated earlier there is nothing in law or equity which prevents the parties from referring even the questions of existence validity or effects scope of the arbitration agreement itself to the arbitrators in fact
Lord Porter s observations quoted earlier from Heymen vs Darwins Ltd and Das J s view in Balabux Agarwala s case show that the parties can do it Secondly the scheme of sections 3 and 7 of the Foreign Awards Act as discussed earlier clearly suggests that the relevant phrase would include even questions of existence validity and effect scope of the arbitration agreement
It is therefore not possible to place a narrow construction on that phrase in section 3 as suggested by Counsel for Renusagar
The decision of this Court in Shiva Jute Bailing Ltd case supra and the supporting observations in three other decisions of this Court namely Kharda Co s case Waverly Jute Mills case and Ms RN Ganekar  Co s case all supra on which reliance was placed by Counsel for Renusagar are of no avail for two reasons i they deal with a position arising under sections 33 34 and 35 of the and the manner in which certain phrases occurring therein are construed would offer no guidance in construing the relevant phrase occurring in section 3 of the Foreign Awards Act which will have to be construed on its own language and in the light of the scheme of the Foreign Awards Act and ii though the ratio in Shiva Jute Bailing Ltd case has been expressed rather broadly it cannot be forgotten that in each one of the four cases the question pertained to either the existence or the validity of the arbitration 498 agreement and not the effect scope thereof ie not the issue of the arbitrability of the claims and therefore the ratio in that case as also the supporting observations made in the other three cases will have to be understood as being applicable to the actual issue that arose on the facts of each on of them
We therefore conclude that both the conditions iii and vi are satisfied in the instant case
The next contention and this has been if one may so the crux of the entire submission of Counsel for Renusagar in the case is that arbitrability of the three claims falls within the wide ambit of the arbitration clause and that therefore Renusagar s suit is in respect of a matter agreed to be referred to the arbitration within the meaning of sec
3 in law that is to say under the law of the Forum being the Indian law in the instant case the issue of arbitrability of claims cannot be finally determined by the arbitrators but must rest with the Court and therefore Renusagar s suit cannot be stayed under that section
According to Counsel both English law as well as Indian law is the same which does not allow questions of arbitrator s own jurisdiction to rest finally with the Arbitrators and in support of this proposition Counsel relied upon the following authorities a Attorney General for Manitoba vs Kelly and Ors supra where the Privy Council at page 276 of the Report has observed thus  Whenever there is a difference of between the parties as to the authority conferred on an umpire under an agreed submission the decision rests ultimately with the Court and not with umpire  Produce Brokers Co vs Olympia Oil and Cake Co It would be impossible to allow an umpire to arrogate to himself jurisdiction over a question which on the true construction of the submission was not referred to him
An umpire cannot widen the area of his jurisdiction by holding contrary to the fact that the matter which he affects to decide is within the submission of the parties b Dalmia Dairy Industries Ltd vs National Bank of Pakistan supra where the enforcibility of the award made by a sole arbitrator pursuant to an arbitration clause contained in the document of guarantee executed by the National Bank of Pakistan in favour of Dalmia Dairy Industries Ltd was resisted by the Bank inter alia on the ground that the arbitrator was not entitled to decide the question of his own jurisdiction when the validity of the contract of guarantee 499 itself was disputed and the Court of Appeal at pages 292 293 of the Report observed thus  Whilst we recognise that in answering issue IB differently from the learned Judge we are rejecting this preference on this issue Mr Sikri s evidence rather than that of Mr Lall we reach our conclusion for the reason that we find nothing in the learned Judge s judgment or in Mr Sikri s evidence or in the Indian authorities which seems to us justify departure from the logical conclusion that there is no difference in principal between a contract containing an arbitration clause admittedly concluded but void for initial illegality and a contract containing such a clause admittedly concluded but where it is alleged that either the contract or the arbitration clause or both have become void because of subsequent illegality
It seem to us to follow that even where the arbitration clause is framed as widely as in the present claim and bears the construction which we have upheld in our answer to issue 1A Indian law will not allow effect to be given to it so as to allow an arbitrator appointed thereunder finally to determine his own jurisdiction e Becker Auto Radio case supra where the United States Court of Appeals 3rd Circuit has expressed the view that the question of arbitrability of a dispute is for the Court to decide para 7 at page 44 of the Report read with footnote 10
d R Prince and Co vs Governor General in Council supra where following the aforesaid Privy Council decision the Punjab High Court at page 242 of the Report has observed thus  It is well established that an arbitrator or umpire must not go beyond the submission and although there is a presumption in favour of the validity of the award and the onus of proving that the arbitrator has exceeded his jurisdiction rests on the person alleging it if an award extends to matters not within the scope of the submission it must be held to be void to the extent that it is in excess of the submission
An Arbitrator cannot give himself jurisdiction by a wrong decision as to the facts upon which the limit of his jurisdiction depends and where there is a difference between the parties as to the authority of the arbitrator under an agreed submission the decision rests 500 with the Court and not with the arbitrator
 Observations in similar strain made by the Allahabad High Court in Municipal Board vs Eastern UP Electricity Supply Co Ltd and Ors
supra by the Delhi High Court in Ms Jagan Nath Phool Chand vs Union of India  Ors
supra and by the Bombay High Court in Vallabh Pitti vs Narsingdas supra were also relied upon
e Russell on Arbitration 20th Edition  At pages 91 92 the following statement of law occurs  It can hardly be with in the arbitrator s jurisdiction to decide whether or not a condition precedent to his jurisdiction has been fulfilled
It has indeed several times been said bluntly that an arbitrator has no power to decide his own jurisdiction and in one case where rules of an institution prepared to conduct arbitrations gave the arbitrator such power the court will ignore this when asked to enforce the award and decide the question itself  Dalmia Dairy Industry s case
Again at page 112 the learned author has digested Dalmia Dairy Industry s case thus  Again some of the rules give the arbitrator power to decide whether he has jurisdiction in a particular dispute
But English court will never give effect to such rules and accordingly if it is sought to enforce in England an award given after such a decision by the arbitrator the court will not accept it but will have to determine the question of jurisdiction for itself
 In our view the aforesaid authorities relied on by Counsel for Renusagar do not touch the real question which we have to decide in the case
The question is whether in view of the wide arbitration clause which embraces questions of existence validity or effect scope of the agreement itself Renusagar s suit which is in respect of a matter agreed to be referred should be stayed so as to enable the arbitrators to proceed with the reference and make their award and that question is required to be considered in regard to foreign awards to be made under the Foreign Awards Act and as such must be considered in light of the scheme of that Act and will necessarily be governed by the provisions thereof
As explained earlier the scheme that emerges on a combined reading of sections 3 and 7 of the Foreign Awards Act clearly contemplates that questions of existence validity or effect scope of the arbitration agreement itself in cases where such agreement is wide enough to include within its ambit such questions may be decided by the arbitrators initially but their deter 501 mination is subject to the decision of the Court and such decision of the Court can be had either before the arbitration proceedings commence or during their pendency if the matter is decided in a section 3 petition or can be had under sec
7 after the award is mane and filed in the Court and is sought to be enforce by a party thereto
In the face of such schemes envisaged by the Foreign Awards Act which governs this case it will be difficult to accept the contention that the arbitrators will have no jurisdiction to decide questions regarding the existence validity or effect scope of the arbitration agreement
In fact the scheme makes for avoidance of dilatory tactics on the part of any party to such agreement by merely raising a plea of lack of arbitrator s competence and a frivolous plea at that and enables the arbitrator to determine the plea one way or the other and if negatived to proceed to make his award with the further safeguard that the Court would be in a position to entertain and decide the same plea finally when the award is sough to be enforced
All that condition iii of sec
3 requires is that the legal proceedings must be in respect of a matter agreed to be referred to the arbitration and there is no warrant to add further words namely agreed to be referred to the arbitration for final determination
Obviously if the occasion to decide the question of arbitrator s jurisdiction arises at an earlier stage namely in a section 3 petition the Court has to decide it before granting stay of the legal proceedings and such decision of the Court on that question will be conclusive and binding on the arbitrator and the question before him will then become academic
It is thus clear that under the scheme questions of existence validity of effect scope of the arbitration agreement itself in cases where the arbitration clause embraces within its scope such questions unless decided by the Court in a section 3 petition could be initially determined by the arbitrators which would be subject to the final decision of the Court
This position under the New York Convention to give effect to which the Foreign Awards Act was passed has been clarified by Albert Jan Van Den Berg in his treatise of New York Convention at page 312 a passage on which Counsel for Renusagar relied
This is what learned author has stated The Convention does not imply that the arbitrator may give a final decision on his competence
Under almost all arbitration laws the arbitrator has no power to give such final decision as arbitration excludes the competence of the courts which is considered as a far reaching effect the courts retain the last word in this matter
Many laws however allow the arbitrator to give a provisional ruling on his competence in order not to 502 delay the arbitration and to alleviate dilatory tactics by obstructive respondents
This principle that the court has the last word on the arbitrator s competence is not different for the New York Convention
If it were otherwise the Convention would have contained express provisions to that effect in order to make clear that in deviates from the prevailing principles of the national arbitration laws
 Secondly even the aforesaid authorities on which reliance has been placed by Counsel for Renusagar excepting perhaps the American decision in Becker Auto Radio case merely lay down that the decision on questions of arbitrator s jurisdiction assuming no distinction is made between questions regarding the existence or validity of the agreement on the one hand and effect scope thereof on the other rests finally or ultimately with the Court and not with the Arbitrator or Umpire
As regards the American decision in Becker Auto Radio case it may be stated as pointed out by Counsel for GEC that the point was not decided but the statement or observation was made on concession of the parties and as regards statement of law at pages 91 92 in Russell on Arbitration it must be pointed out that the passage pressed into service by Counsel is merely a half portion of the statement of law but the fuller statement of law as we shall indicate later gives a different picture These authorities do not suggest that the arbitrator or umpire may not decide these questions even provisionally or tentatively In other words there is nothing in the general law of arbitration either English or Indian which prevents the arbitrators or an umpire from deciding questions of their own jurisdiction provisionally or tentatively and to proceed to make their awards on that basis though it is clear that their provisional or tentative decision on questions of their own jurisdiction would be subject to the final determination by the Court and if the Court takes a contrary view their award will not be given effect to and in our view this is exactly the scheme of the Foreign Awards Act
It may not be out of place to mention here that the statement of Albert Jan van den Berg that many national arbitration laws allow the arbitrator to give a provisional ruling on his competence in order not to delay the arbitration and to alleviate dilatory tactics by obstructing respondents is borne out in regard to the general law of arbitration both English and Indian by several decisions
The position under English law has been summarised in Russel on Arbitration at pages 91 92 where a fuller statement of law to which we had adverted earlier appears thus 503 It can hardly be within the arbitrator s jurisdiction to decide whether or not a condition precedent to his jurisdiction has been fulfilled
It has indeed several times been said bluntly that an arbitrator has no power to decide his own jurisdiction and in one case where rules of an institution prepared to conduct arbitrations gave the arbitrator such power the Court will ignore this when asked to enforce the award and decide the question itself
However an arbitrator is always entitled to enquire whether or not he has jurisdiction
An umpire faced with a dispute whether or not there was a contract from which alone his jurisdiction if any can arise can adopt one of a number of courses
He can refuse to deal with the matter at all and leave the parties to go to court or he can consider the matter and if he forms the view that the contract upon which the claimant is relying and from which if established alone his jurisdiction can arise is in truth the contract he can proceed accordingly The first part of the statement is based on Dalmia Dairy Industry s1 case supra while the latter part is based on Brown vs Oesterrei chischer Waldbesitzer R Gmbh and Per Roskill J in Luanda Exportadora and Ors
vs Tamari  Sons  Others2 So far as Indian Law is concerned the position is clarified in Vallabh Pitti vs Narsingdas supra a decision on which Counsel for Renusagar relied where the Bombay High Court has held that the jurisdiction of the arbitrators to decide the question of existence of the contract which contains an arbitration clause is not wholly taken away by mere denial of its existence that the arbitrator may consider the question of jurisdiction not to give final and binding judgment on that question but in order to determine what course they should adopt that they may in a case hold that they have no jurisdiction and direct the party who affirms the jurisdiction to obtain a decision of the Court under the but on the other hand if they are satisfied that they have got jurisdiction they may proceed with the arbitration and make their award but a decree in terms of such award may not be made by the Court if at the time when one is sought the Court decides question of jurisdiction otherwise
The High Court pointed out that a similar view was taken by Bachawat J in Pannallal Sagoremull vs Fatey Chand Muralidhar3 and that after deciding the 504 question in issue he affirmed the award and passed a decree in terms thereof
Similarly it may be pointed out that there is no difference between English law and Indian law on the point that an arbitration agreement which empowers an arbitrator to decide the question of its existence validity or effect scope is neither invalid nor void
In Heyman vs Darwins Ltd Lord Wright s observations at p 385 of the Report clearly suggest that there can be a valid agreement to refer any dispute to arbitration including a dispute as to whether the contract in which the arbitration clause is contained was ever entered into at all or whether if there was it had been avoided or ended
As regards Indian law in Fertilizer Corporation of India vs Chemical Construction Corporation1 the Bombay High Court has clarified this position while dealing with Rules 3 and 4 of Article 13 of the Rules of Conciliation and Arbitration framed by the International Chamber of Commerce under which the arbitrators were clothed with a power to decide inter alia a question as to the existence and validity of the Contract
Not only has the High Court held that the conferral of such power on the arbitrators does not render the Rules void but has further gone on to hold that if such a plea is raised by way of a defence in an application for stay of suit under section 34 of the it will be for the Court to consider the validity of the arbitration agreement itself and if in the opinion of the Court the contract which contains the arbitration clause is valid no question is likely to arise before the arbitrators on that point and even if such question were to arise the arbitrators will be concluded by the decision of the Court
We may point out that following this decision in Fertilizer Corporation s case supra the Court of Appeal in Dalmia Dairy Industries  case supra has held that the Rules of ICC enabling the Arbitral Tribunal to decide its own jurisdiction were not void vide page 290 of the Report and it has further noted without disapproval the further observations of the Bombay High Court that if the court once itself decides the question that the arbitrators had jurisdiction then that point would hardly be raised before the arbitrators and if it were the arbitrators would be bound by the decision of the Court on the point
In view of the position which arises from the aforesaid discussion it is really unnecessary for us to go into and decide the question whether in cases where the arbitration clause contained in the underlying Commercial Contract is so widely worded as to include 505 within its scope the questions of its existence validity or effect scope the decided cases have made a distinction between questions as to the existence or validity of the agreement on the one hand and its effect scope on the other and have held that in the case of the former those questions cannot be decided by the arbitrators as by sheer logic the arbitration clause must fall along with the underlying Commercial Contract which is either non existent or illegal while in the case of the latter it will ordinarily be for the arbitrators to decide the effect scope of the arbitration agreement as is contended for by Counsel for GEC because both under the scheme of the Foreign Awards Act as well as under the general law of arbitration obtaining in England and in India the decision of the arbitrator on the question of his own jurisdiction will have to be regarded as provisional or tentative subject to final determination of that question by the Court
However on a consideration of the rival authorities that have been cited at the Bar bay Counsel on either side we are inclined to accept the contention of Counsel for GEC for the following reasons a that conceptually a challenge to the existence or validity of the arbitration agreement contained in an underlying Commercial Contract is fundamentally different from an inquiry into the scope and effect of such agreement in as much as the former goes to the root of the arbitration agreement whereas the latter pre supposes that the arbitration agreement exists in fact and in law and the inquiry is then undertaken as to its true scope and effect b that indisputably decided cases have made this distinction between the two concepts eg in Jawahar Lal Barman s case supra this Court has noted this distinction for the purposes of procedural aspects arising under sections 312 32 and 33 of the  but the English cases particularly Heyman vs Darwins Ltd supra and Willesford vs Watson supra have made that distinction substantively c that certain observations made by this Court in para 6 of its judgment in Water Supply Service India P Ltd vs The Union of India and Others1 on which Counsel for Renusagar have relied in support of their contention that existence of an arbitration agreement is the same as the effect scope thereof do not in our view have the effect of equating the question of the scope of the arbitration agreement with the question of its existence in that case the application made under section 5 of the to revoke the arbitration was obviously mis conceived inasmuch as the ground on which the revocation was sought was that the disputes sought to be referred to arbitration were not within the purview of the arbitration clause and 506 it was in that context that the observations were made in para 6 of the judgment to say that such a dispute was as regards the existence of the arbitration agreement in fact the ratio of the decision was that the controversy raised in the case fell within the scope of section 33 of the and not section 5 in any case in our view the incidental observation in para 6 of the judgment in that case on which Counsel for Renusagar have relied cannot outweigh the distinction which has been noticed by this Court in its well considered judgment in Jawahar Lal Barman s case supra d that an analysis of several decisions cited at the Bar we venture to suggest shows that almost all the decision which articulate the principle broadly by saying that an arbitrator has no power to decide questions of his own jurisdiction are cases in which the question of either the existence or the validity of the arbitration agreement was involved whereas whenever the question of arbitrator s jurisdiction depended upon the scope or effect of the arbitration agreement Courts appear to have readily directed the parties to go before the arbitrators and e in any event the decision of the Court of Appeal in Chancery in Willesford vs Watson supra which decision has been annotated and digested in Russell on Arbitration 20th Edn is a clear authority for the proposition that where the arbitration clause was very widely worded so as to include within its scope any dispute touching the construction of the contract which contained the arbitration clause the Court would not decide but would leave it to the arbitrator to decide the question whether the matter in dispute between the parties fell within the arbitration agreement
In fact the Court of Appeal in that case repelled every endeavour on the part of the appellants to require the Court to do the very thing which lay within the competence of the arbitrators that is to say to look into the whole matter to construe the instrument and to decide whether the thing complained of was inside or outside the agreement and directed the parties to go to arbitration by staying the suit
It would be debatable whether in such a case where the Court has expressly declined to decide the dispute involved between the parties and has directed the parties to go to arbitration the arbitrator s decision on the question of his jurisdiction would again be subject to Court s decision
Would it not be a case similar to the case falling within the principle of a specific question of law being expressly referred to an arbitrator whose decision thereon finally binds the parties But as stated at the out set the aforesaid question on which we have expressed our view does not arise for decision in this case
It was next contended by Counsel for Renusagar that a stay if 507 granted as sought by GEC in a petition under section 3 it would render Renusagar s suit dead for all practical purpose and there will be nothing left to be decided in the suit either because the suit is stayed indefinitely or alternatively because the decision on the issue would operate as red judicata in the suit and therefore no relief of stay should be granted which will have such effect merely on a prima facie view or a pro tanto finding on the issue of arbitrability of the claims in support Counsel relied upon a decision of the Allahabad High Court in Strauss Company s case supra a case arising under the earlier Indian Arbitration Act 1899 where that High Court has expressed the view that a stay order under section 19 of the  when the arbitration has in fact taken place is sufficient finally to dispose of the suit
In other words the contention was that a section 3 petition could not be a proper stage to decide the issue of arbitrability of the claims but the same should be decided in the suit when it will be finally tried
If regard be had to the provisions of section 3 as well as the legal position arising under decided cases the contention will be found to be devoid of any substance
It may be that a stay of the suit either under section 3 of the Foreign Awards Act or under section 34 of the may have the effect of finally disposing of the suit for all practical proposes as pointed out by the Allahabad High Court
But that is no reason why the relief of stay should be refused by the Court if the concerned legal provision requires the Court to do so
Here we are concerned with section 3 which makes it obligatory upon the Court to stay the legal proceedings if the conditions of the section are satisfied and what is more the section itself requires that before any stay is granted the Court should be satisfied that the arbitration agreement is valid operative and capable of being performed and that there are disputes between the parties with regard to the matters agreed to be referred to arbitration condition v and vi mentioned earlier
In other words the section itself indicates that the proper stage at which the Court has to be fully satisfied about these conditions is before granting the relief of stay in a section 3 petition and there is no question of the Court getting satisfied about these conditions on any prima facie view or a pro tanto finding thereon
Parties have to put their entire material before the Court on these issues whichever may be raised and the Court has to record its finding thereon after considering such material
It may be stated that though s34 of the confers a discretion upon the Court in the matter of granting stay of legal proceedings where there is an arbitration agreement it cannot be disputed that before granting the stay the Court has to satisfy itself 508 that arbitration agreement exists factually and legally and that the disputes between the parties are in regard to the matters agreed to be referred to arbitration these aspects fall within the phrase if satisfied that there is no reason by the matter should not be referred  occurring therein and decided cases have taken the view that the Court must satisfy itself about these matters before the stay order is issued
In other words Court under s34 must finally decide these issues before granting stay
In Phagwandas vs Atmasing on a consideration Act the Bombay of the scheme underlying sections 3233 and 34 of the Arbitration High Court has taken the view that is a defendant who applies for stay section 34 has to say that there is an arbitration agreement that if the plaintiff says that there is no agreement then the issues arises between the parties and there nothing in section 34 to prevent the Court from deciding that issue to enable it to pass an order under that Section
The same position under section 41 of the English Arbitration Act 1950 has been affirmed in a judgment of the Court of Appeal in England in Modern Building Wale Ltd vs Limmer and Trinidad Co Ltd2 The Court of Appeal held that where a party claimed that proceedings should be stayed because there was an arbitration agreement in force the Court was under a duty to construe the terms of the contract in order to decide whether there was a valid arbitration clause and that question had to be determined at an interlocutory stage because it had to be done before the defendant took any step in the action
In Anderson Wright Ltd vs Meran  Co3 the respondent Moran  Co sold certain goods to the appellant under a number of similar contracts which contained a wide arbitration clause
Respondent however described himself as broker when signing the contracts
The appellants wanted to claim damages from the respondent for non delivery of the goods under the contract notes and desired to refer the same to the arbitration
To prevent this arbitration the respondent filed a suit for a declaration that he was not a party to the said contracts he having signed the same as broker and that he had incurred no liability thereunder and he further prayed for the consequential relief of an injunction restraining the appellant from claiming damages in respect of the said contracts
The appellant applied for the stay of the suit under section 34 of the Arbitration Act
Learned trial Judge granted stay of the suit
The Appellate Bench of the High Court took the view that the only matter in dispute between parties was whether the respondent was a party to the contract or not and that this dispute was outside the 509 scope of the arbitration agreement but no opinion was expressed on the question whether there was a binding arbitration agreement between the parties which was the only issue in the suit the relief on merits being consequential since that would in the opinion of the Appellate Court create a bar of res judicata against one of the party
This Court however held that it was incumbent upon a Court when invited to stay a suit under section 34 of the Arbitration Act to decide first of all whether there is a binding arbitration agreement between the parties or not
At page 870 of the Report the Court has observed thus In this case it is certainly not admitted that the respondent was a party to the contract
In fact that is the subject matter of controversy in the suit itself
But as has been said already the question having been raised in this application under section 34 of the Arbitration Act the Court has undoubted jurisdiction to decide it for the purpose of finding as to whether or not there is a binding arbitration agreement between the parties to the suit
 The Court actually sent the case back for a decision of that question with a direction that if the Court came to the conclusion that the respondent was in fact a party to the contracts the suit shall be stayed and the appellant would be allowed to proceed by way of arbitration but if on the other hand the finding was adverse to the appellant the application for stay will be dismissed
Counsel for Renusagar pointed out that the suit did not merely raise the issue that the respondent was not a party to the contract notes and that therefore there was no arbitration agreement between the parties but also claimed relief on merits namely an injunction restraining the appellant from claiming damages in respect of the said contracts and therefore the direction to stay the suit in case the finding on the main issue went a against the respondent had some meaning but in the instant case before us no relief on merits has been claimed by Renusagar in its suit which merely raises the issue of arbitrability of the claims
In our view this distinction is neither valid nor relevant to the question under consideration
Not valid because the only issue which the suit filed by Moran  Co raised was whether there was binding arbitration agreement between the parties or not and an adverse decision thereon in a sec
34 application would have had the effect of disposing of the suit for all practical purposes the consequential relief automatically falling to the ground along with such adverse decision
Not relevant because the question of issue is whether a sec
34 application is proper stage for deciding such issue though it may have the effect of the issue becoming res judicata in 510 the suit
What is of significance is that the decision of this Court does show that notwithstanding the fact that a finding on the issue that the respondent was a party to the contracts would have operated as res judicata in the respondents  suit the Court directed that issue to be decided in a section 34 petition for stay
In deciding the question under section 34 in this manner the Court expressed its entire agreement with the view enunciated by Mr Justice SR Das in Khushiram vs Hantumal that where on an application made under sec
34 of the Arbitration Act for stay of a suit an issue is raised as to the formation existence or validity of the contract containing the arbitration clause the Court is not bound to refuse a stay but may in its discretion on the application for stay decide the issue as to the existence or validity of the arbitration agreement even though it may involve incidentally a decision as to the validity or existence of the parent contract
If this is the position under section 34 of the Arbitration Act which confers discretionary power upon the Court a fortiori the Court acting under section 3 of the Foreign Awards Act must decide such issues at that stage when the grant of stay is obligatory
In the instant case the issue pertained to the arbitrability of the three claims under the Arbitration clause in the contract and depended upon the proper construction thereof in light of the conduct of the parties and surrounding circumstances and no prejudice was caused to any of the parties as both Renusagar s application for injunction and GEC s stay petition under sec
3 were heard together and parties did put before the Court Trial Court the Appeal Court and even before us the entire material such as each wanted to rely upon and sought a decision on the concerned issue and we are satisfied that the finding recorded by both the lower courts on the issue is correct and in that view of the matter the prayer for injunction restraining arbitration sought by Renusagar could not be granted and was rightly refused
The triable issue raised in the suit having been found upon against Renusagar no question of balance of convenience survives
We would reiterate that the Court s decision on the issue of arbitrability of three claims will have to be regarded as final conclusive and binding and that issue would not arise before the Court of arbitration of ICC and even if it is raised it would be purely academic
In the result both the appeals filed by Renusagar against GEC are dismissed with costs
SR Appeals dismissed


Summary:
The first respondents General Electric Company a company incor 433 porated under the laws of the State of New York USA on a contract in writing dated August 24 1964 agreed to sell to the appellant Renusagar Power Company Ltd equipment for a thermal electric generating plant to be erected at Renukoot on the terms and conditions set out therein
Work to be performed under the contract included supply of equipment spare parts and services for which a sum of  13 195000 being the total purchase price and otherwise called the Contract Base Price was payable by Renusagar in lawful currency of the USA in the manner stipulated in the contract
Under the contract the parties intended completion of a the delivery of the equipment and spare parts etc
within 15 months of the Contract Effective Date December 31 1964 ie upto March 30 1966 b the erection of the plant within 16th to 30th month ie from April 1 1966 to June 30 1967 so that c the plant would be fully operational by the end of 30th month from the Contract Effective Date ie by July 1 1977
The parties therefore agreed a that substantial payment of the purchase price by Renusagar should commence when the plant became operational ie June 30 1967 b that no interest would be payable during the delivery period c that interest shall be paid during the erection period and thereafter till payment but the interest during the erection period would be capitalised and added on to the principal d that initially ten per cent of the total Contract Base Price  1 319 500 should be paid either in cash or by means of a Letter of Credit within 30 days of the Contract Effective Date and that the balance of 90 of the purchase price plus interest at 6 12 per annum from 16th to 30th month aggregating to US  12 77605875  11 875 500 for principal plus  900 558 75 being the capitalised interest at the aforesaid rate for the aforesaid period should be paid in accordance with the schedule of payments set out in the contract
The schedule for the payment of the said balance of 90 of the purchase price provided for payment to be made in sixteen six monthly instalments of US  79850368 each the first of such instalments being payable on 3061967 and the last instalment falling due on 31121974
The obligation to make such payment was to be evidenced by four series A B C D of 16 unconditional negotiable promissory notes to be executed by Renusagar Vide Article III e that in case of first respondent receiving an exemption from the Government of India from payment of income tax on interests received by it from Renusagar then the interest for that portion of the period shall be computed at 6 instead of 612 per annum and that the concerned promissory notes would be replaced or substituted by fresh one reflecting the adjustment in payment of interest necessitated by the grant of tax exemption f that should GEC s application for exemption be denied the appellants may withhold the Indian Income Tax applicable to any payments of interest but shall furnish the first respondents with tax receipts of all withheld amounts paid to the Government of India so as to enable first respondents to obtain corresponding credit for the sum in their US tax assessment Vide Article XIV B g that the appellants shall furnish guarantee of the United Commercial Bank for payment of the full amount of promissory notes h that the rights and obligation of the parties would be governed in all respects by the laws of the State of New York U section A Vide Article XIX A and that j Any disagreement arising out of or related to this contract which the parties are unable to resolve by sincere negotiation shall be finally settled in 434 accordance with the Arbitration Rules of the International Chamber of Commerce
As provided in the said Rules each party shall appoint one Arbitrator and the Court of Arbitration of the International Chamber of Commerce shall appoint the third Arbitrator
Arbitration proceedings shall be conducted at such time and place as the Court of Arbitration shall decide
Judgment upon an award may be entered in any court of competent jurisdiction Vide Arbitration Clause in Article XVII
Pursuant to the said Contract the appellants fulfilled all preliminary conditions of the contract including the furnishing of a guarantee executed by the UCO Bank irrevocably guaranteeing to the first respondents and to any subsequent holder in due course of the notes the full and prompt payment of the principal and interest on the notes
Subsequently on an agreement recorded in the first respondents letter dated June 11 1965 and as approved by the Central Government the 1964 Contract IGE 9584 was extended to include the supply of unfabricated structural steel to Renusagar for approximately US  300000 on the same conditions including the Arbitration Clause as contained in the original 1964 IGE 9584 Contract except that the appellants agreed and issued a fifth series E series of sixteen promissory notes bearing interest at 612 per annum evidencing 90 of the price of the structural steel and the payments dates thereof being the same dates as the corresponding promissory notes of the earlier four series
During the implementation of the contract two events occurred giving rise to the GEC s three claims against the appellants that are sought to be referred to arbitration of International Chamber of Commerce namely i grant of exemption by the Government of India to G E C in respect of interests on purchase price receivable by it from the appellants and the revocation thereof leading the appellants to file a civil writ petition No 179 of 1970 in the Delhi High Court and getting the revocation orders quashed and ii re scheduling dates of payment of purchase price agreed to by the parties but not approved by the Reserve Bank of India and the Government of India
The three claims of G E C were i the Unpaid Regular interest to the tune of 21 million dollars U section wrongly deducted and wrongly with held and kept with themselves by the appellants from 1970 onwards denying G E C of the benefit of getting the corresponding credit in their US tax assessment from 1970 onwards
The amount represented the difference between U section  241268020 73 of the interest payable calculated on the basis of 612 subject to tax and U section  21 30 78552 calculated on 6 tax free basis ii Liability for Delinquent Interest on account of the delays in payment of four instalments of purchase price together with interest due to the failure to have re scheduling of payments approved by Reserve Bank and Government of India to the tune of U section  78415184 calculated on the basis of 6 tax free basis and iii The Compensatory Damages arising out of non payment of the aforesaid two claims of Unpaid Regular Interest and Delinquent Interest for over twelve years the quantum being calculated by way of interest on those amounts at the market rate of 435 18 per annum amounting to US  41 610 53488 upto 3131982 to be extended till the date of actual payment
According to GEC the appellants for a long period of 12 years had illegally and wrongfully retained on one pretext or the other these two funds with itself and had enjoyed the use thereof for its own private advantage and had correspondingly totally deprived GEC of their use for which the appellants must compensate by way of damages in as much as they must be regarded as a stake holder or constructive trustee of those funds from the various dates on which the payments became due and payable and under the common law jurisdiction restitution was payable by a stake holder to the party ultimately determined to be a rightful beneficiary owner of the funds
By a notice of intention to arbitrate dated March 1 1982 GEC called upon the appellants to remit the aforesaid sums and also addressed a letter dated March 2 1982 to the Secretariat court of Arbitration of ICC containing a request for arbitration being undertaken by it seeking reliefs as set out in the notice to the appellants
After ICC took cognizance of the request for arbitration by GEC it called upon the appellants to nominate its Arbitrator file its reply and remit certain sums towards the administrative expense and arbitration fees
Thereupon the appellants on June 11 1982 filed suit No 83282 in the Bombay High Court on its original side against GEC and ICC seeking a declaration that the claims referred to the arbitration of ICC by GEC were beyond the scopepurview of the arbitration agreement contained in Article XVII of contract IGE 9584 dated August 24 1964 and that GEC was not entitled to refer the same to the arbitration with consequential prayers for injunctions restraining GEC and ICC from proceeding further with the reference and restraining ICC from requiring the appellants to make the appellants to make any deposit towards administrative expenses and Arbitration fees and obtained an ex parte ad interim relief
On August 11 1982 GEC filed Arbitration Petition No 96 of 1982 under section 3 of the Foreign Awards Recognition and Enforcement Act 1961 seeking stay of suit No 832 of 1982 and all proceedings therein with a prayer for vacating the ad interim ex parte reliefs obtained by the appellants in the said Suit
Both the matters GEC s stay petition under section 3 and the appellants  Notice of Motion for confirmation of ad interim reliefs were heard together and by a common judgment and order dated April 1920 1983 the learned Single Judge allowed the Arbitration Petition 96 of 1982 granted the stay of Suit No 832 of 1982 and all the proceedings therein since all the ingredients of section 3 of the Foreign Awards Recognition and Enforcement Act 1961 had been satisfied and vacated all the interim reliefs granted earlier
The learned Judge held a that the Arbitration Clause in the original 1964 Contract could be availed of by GEC in as much as not only had the October 1968 Amendment kept alive all other terms and conditions of the 1964 Contract including Arbitration Clause but it had fallen through for lack of Government s approval b though 436 the first two claims sought to be referred to arbitration by GEC were based on the promissory notes towards the purchase price was provided under the Contracts itself and these were not by way of any independent or separate Contracts in discharge of the obligation to pay the purchase price under the contract and since the Arbitration Clause covered all the disputes arising out of the contract those claims fall within the Arbitration Clause and c that the liability to pay the compensatory damages arose out of failure to carry out the terms and conditions of the contract in regard to payment of purchase price and that even assuming that the said claim was one in tort it was directly and inextricably connected with the terms and conditions of the contract and certainly arose out of the contract of was in relation to the contract and therefore could be entertained by the Arbitrators
Renusagar preferred two appeals being civil Appeal Nos
404 405 of 1983 and contended a An Arbitrator had no jurisdiction to decide the limits of his own jurisdiction and since in the case of International Arbitration the jurisdiction of the Arbitrator had to be decided according to the Law of the Forum where the question is raised in the instant case being the Indian Law the jurisdiction of the Arbitrator according to that Law had to be decided by the Court and not by the Arbitral Tribunal b the dispute sought to be referred related substantially to the claim for interest and that claim was and it was so stated in the notice of intention to arbitrate founded on the promissory notes which were independent contracts by themselves and therefore the claim did not arise out of the suit contract and hence could not be the subject matter of Arbitration c that claim for compensatory interest was really a claim for damages arising out of tort and such a claim was in any case not case by the suit contract and fell outside the scope of the Arbitration Clause and d in any event Renusagar had made out a prima facie against by raising serious triable issues in the suit which should enable it to claim an injunction restraining the arbitration proceedings
The Court of appeal negatived all the contentions and ultimately confirmed the trial Judge s order whereby Renusagar s suit was stayed and the interim reliefs granted to it were vacated and hence the appeal by certificate by Renusagar
Arguments for the appellants 1 The Arbitration Petition under section 3 which is really in the nature of a Petition under section 34 of the Indian  is totally misconceived and liable to be dismissed because the Suit No 8321982 filed by the appellants is merely for a declaration that the three claims sought to be referred to arbitration are beyond the scopepurview of arbitration clause and no other relief on the merits of those claims is sought and the Suit being really in the nature of a petition under section 33 of the Indian  in as much as it seeks to have the effect scope of the arbitration agreement determined can never by stayed under section 3 of the Foreign Awards Act
437 2 The suit filed by the appellants is not in respect of any matter agreed to be referred to arbitration as required by section 3 and therefore the stay sought for by GEC should be refused 3 The Court acting under section 3 like the Court acting under section 33 of the Indian  being a court of limited Jurisdiction cannot determine the question of the existence validity or effect of the arbitration agreement which is the only issue to be tried in the appellants  suit and it is for the court trying the suit to decide the question raised in the suit and therefore a stay if granted under section 3 application would finally determine the suit or render it almost dead for all practical purposes and therefore no relief on the said petition can be granted which will have such effect 4 The question raised in the suit relating to the effect scope of the Arbitration Agreement which is the same as the question relating to the existence thereof is such as is incapable of being finally determined by the Arbitrators and hence such a suit cannot be stayed under section 3 of the Foreign Awards Act 5 The underlying commercial contract IGE 9584 for sale of goods and services contains no obligation to pay any interest after June 30 1967 ie after the 30th month from the contract effective date whether six and a half per cent or six per cent but that such obligation to pay interest after June 30 1967 is only to be found in the promissory notes and the two claims of GEC namely first claim of 21 million US dollars and the second claim for US  7815184 towards approximately 80 for Unpaid Regular Interest and Delinquent Interest respectively being dues after June 30 1967 preferred before the arbitrators do not arise out of the contract nor are they in relation to thereto but arise under the promissory notes and hence fall outside the scope of arbitration agreement 6 The promissory notes executed by the appellants were in complete discharge of the obligation to pay purchase price and interest thereon under the contract and these notes constitute independent and separate contracts by themselves and therefore the liability arising out thereunder cannot be regarded as any arising of the contract or in relation thereto and what is more these claims have been described by the GEC in their notice of intention to arbitrate as arising under the promissory notes 7 The claim for compensatory damages being a liability arising in tort for wrongful detention of the first two funds and since it was being enforced on the basis of appellants  status as a stake holder or constructive trustee the same is clearly outside the scope of the arbitration agreement and 8 Since the issue of arbitrarily of these claims is raised in the appellants  suit it is but proper that till the issue raised in the suit is finally decided by the Court the arbitration proceedings should be injuncted
438 Arguments for respondent company 1 The schemes of the Foreign Awards Act and the Indian being not identical there are various material differences which have a bearing on the issue whether a suit seeking determination of the effect scope of an arbitration agreement can or cannot be stayed in a petition under section 3 of the Foreign Awards Act and that answer to it depends upon proper construction to be placed on the section in the light of the scheme of that Act 2 Since all the ingredients of section 3 have been satisfied the stay of Renusagar s suit will be obligatory 3 Alternatively the legal position is that both under English Law and Indian Law it is open to the parties to have an arbitration agreement incorporating words of the widest amplitude so as to embrace even the questions of its existence validity or effect scope but an enquiry into the scope and effect of an arbitration agreement and a challenge to the existence or validity thereof are not the same but fundamentally different in as much as the first pre supposes that the arbitration agreement exists in fact and in law and the enquiry then is limited to the scope and effect thereof 4 Whenever it is said that an arbitrator cannot decide the question of his own jurisdiction all that is intended is that he cannot determine that too finally the question of the existence factual or validity ie legal existence of the arbitration agreement if contained in the underlying commercial contract and this must be so for if the existence or validity of the underlying commercial contract is successfully challenged the arbitration clause which is the part and parcel thereof must perish with it and therefore the Arbitrator will have no jurisdiction to decide the issue of the existence or validity of the agreement but even here if the arbitration agreement so widely worded if separate and independent from the commercial contract the arbitrator will have jurisdiction to decide the questions about existence or validity of the commercial contract but these principles have no application whatsoever to a case where the issue relates to the scope and effect of the arbitration agreement contained in the underlying commercial contract and the arbitration agreement is wide enough to include such an issue for in such a case the Arbitrator will have Jurisdiction to decide that issue
Therefore since in the instant case the Arbitration Clause contained in the underlying commercial contract IGE 9584 is of the widest amplitude it is the Court of Arbitration of ICC which will have jurisdiction to adjudicate not merely three claims of GEC on merits but also the issue whether those claims fall within the Arbitration Clause or not 5 The issue pertaining to the scope and effect of the arbitration agreement if raised in an application under section 34 of the Indian  the Court has to decide it and the Courts  decision thereof 439 will naturally be binding on the Arbitrators even though the issue was within the competence of the Arbitrators because of the wide wording of the Arbitration Clause
Here since the Court has decided the issue whether the three claims arise out of or are related to the contract affirmatively it will be binding on the Court of Arbitration of ICC and it will be futile for that court of Arbitration to go into that question again 6 The commercial contract IGE 9584 does contain an obligation on the part of Renusagar to pay interest on unpaid purchase price after June 30 1967 and not merely in the promissory notes which could be readily inferred from article III a 3c read with Article XIV B and therefore the first two claims for Unpaid Regular Interest and Delinquent Interest due after June 30 1967 preferred before the Arbitrators not merely arise out of but really arise under the contact 7 The third claim for Compensatory Damages which flows by way of corollary from wrongful detention of the first two funds which ought to have been paid under the Contract is so closely connected with the contract that it is clearly in relation to it 8 The promissory notes executed by Renusagar were not and are not in discharge of the obligation to pay the price and interest thereon under the contract nor do these notes constitute independents and separate contract by themselves
These are a part of the contract and the two are so inseverably and inextricably bound together that the obligation under the contract can never be deemed nor intended to have been completely discharged by the mere execution of the notes
The real nature of the claims preferred before the arbitrators and not the nomenclature or description thereof by any party would be relevant and decisive Alternatively even assuming a that the promissory notes are not an inseverable and inextricable part of the Contract b that the obligation arising under the Notes is totally different from the one arising under the contract and c that the Notes re in discharge of the obligation to make payment under the Contract all of which are strongly denied the three claims would still be covered by the Arbitration Clause which is of the widest amplitude for it would be erroneous to determine whether a claim arises out of or in relation to the Contract by looking at the cause of action on which the claim is based
9 The Court of Appeal was justified in coming to the conclusion that no prima facie case for injunction restraining arbitration proceedings had been made out by Renusagar and it had therefore rightly vacated the ad interim injunction and stayed Renusagar s suit
Dismissing the appeals the Court  HELD 11 The question whether under section 3 of the Foreign Award Recognition and Enforcement Act 1961 having regard to its scope a suit in the nature of a petition under section 33 of the could be stayed must necessarily depend upon a correct construction 440 of the said section 3 by keeping in mind the objective sought to be achieved by that Act and its scheme and not on the basis of similar or analogous provisions that are to be found in the or the manner in which such similar or analogous provisions have been construed by Indian Courts
491F G 492A B 12 The Statement of Objects and reasons shows that the Foreign Awards Recognition and Enforcement Act 1961 seeks to achieve speedy settlement of disputes arising from international trade through arbitration
The Act a successor to the was enacted to give effect to the New York International Convention on the Recognition and Enforcement of Arbitral Awards adopted on 10th June 1958 and to which India is a party
Section 2 of the Act defines the expression Foreign Awards and closely follows the language of Article II of the convention which provides for recognition by contracting States of agreements including arbitral clauses in writing by which the parties to the agreement undertake to submit to arbitration all or any difference which have arisen or which may arise between them in respect of defined legal relationship whether contractual or not concerning a subject matter capable of settlement by arbitration
492B DG 13 Since the Act is calculated and designed to subserve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration any expression or phrase occurring therein should therefore receive consistent with its literal and grammatical sense a liberal construction
An examination of the relevant provisions of the Foreign Awards Act and the of 1940 show that the schemes of the two Acts are not identical and there are various differences which have a material bearing on the question under consideration and as such decisions on similar or analogous provisions contained in the cannot help in deciding the issue arising under the Foreign Awards Act because just as the is a consolidating enactment governing all domestic awards the Foreign Awards Act constitutes a complete code by itself providing for all possible contingencies in relation to Foreign Awards made pursuant to agreements to which Article II of the Convention Applies
492G 493A B 14 On a plain reading of Section 3 of the Foreign Awards Act two things become very clear namely i the section opens with a non obstante clause giving over riding effect to the provisions contained therein and making it prevail over anything to the contrary contained in the or the Code of Civil Procedure 1908 and ii unlike section 34 of the which confers a discretion upon the Court the section uses the mandatory expression shall and makes it obligatory upon the Court to pass the order staying the legal proceedings commenced by a party to the agreement if the conditions specified therein are fulfilled
494A B The conditions required to be fulfilled for invoking section 3 of the Foreign Awards act are 441 1 there must be an agreement to which Article II of the Convention set forth in the Schedule applies
It is not disputed that this is so in the instant case 494C 2 a party to that agreement must commence legal proceedings against another party thereto it is again not disputed that Renusagar and GEC are the two parties to the arbitration agreement an that Renusagar has commenced legal proceedings against GEC by filing Suit No 832 of 1982 494D 3 the legal proceedings must be in respect of any matter agreed to be referred to arbitration in such agreement the question whether this condition is fulfilled here needs to be decided 494E 4 the application for stay must be made before filing the written statement or taking any other step in the legal proceedings admittedly this condition is fulfilled 494F 5 The Court has to be satisfied that the agreement is valid operative and capable of being performed this relates to the satisfaction about existence and validity  of the arbitration agreement in the instant case these questions do not arise and 494G 6 the Court has to be satisfied that there are disputes between the parties with regard to the matters agreed to be referred this relates to effect scope of the arbitration agreement touching the issue of the arbitrability of the claims it will have to be dealt with while considering the satisfaction of condition 3
494H In the instant case the parties were thus at issue as to the fulfilment of conditions 3 and 6 only and it is on the fulfilment of these that the obligation of the court to stay the suit of Renusagar will arise 495A 15 The scheme of the two Acts Foreign Awards Act and  materially differ on several aspects having a bearing on the points at issue I as seen by an examination of section 3 4 7 of the Foreign Awards Act in juxtaposition with sections 32 33 and 34 of the 
Under section 32 of the suits no challenge the existence or validity of an arbitration agreement or award as also suits to have the effect scope of an arbitration agreement determined are barred and such questions can be raised only by an application under section 33 of the Act whereas under the Foreign Awards Act there is no provision similar or akin to sections 32 and 33 and that is why a suit of the nature filed by Renusagar qua the arbitration agreement covered by the Convention is maintainable but by virtue of sections 3 and 7 the same purpose is served though by different procedure
Sections 3 and 7 read together disclose a scheme that so far as questions of existence validity and effect scope of the arbitration agreement are concerned the determination thereof by the arbitrators is also subject to the decision of the Court and this 442 decision of the court can be had either before the arbitration proceedings commence or during their pendency if the matter is decided by the Court in a section 3 petition as in the present case or can be had under section 7 after the award is filed in the court and is sought to be enforced under section 6
True section 42 declares that a foreign award shall be filled treated as binding for all purposes  on persons as between when it is made but that is subject to section 7 where under enforceability thereof is made dependent upon satisfaction of certain conditions specified therein for example under section 71 a iii one of such conditions for enforceability is that the award should not deal with questions not referred nor should it contain decisions on matters beyond the scope of the agreement
In effect section 3 of the Foreign Awards Act so to say combines in its own ambit both sections 33 and 34 of the  in other words questions regarding the existence validity or effect scope of the arbitration agreement which can be decided under section 33 of the are required to be decided under section 3 of the Foreign Awards Act be fore a stay of legal proceedings contemplated therein could be granted and the right to have legal proceedings stayed contained in section 34 of the is also to be found in the same section 3
Further the Foreign Awards Act has also taken cognizance of the possibility that there may not be a Section 3 petition at all the matter being directly proceeded before the arbitrators and the possibility of the arbitrators giving a decision on an issue not within their competence or jurisdiction and in such cases section 7 contains a safeguard which prevents any such award from being made enforceable
Such being the scheme under the Foreign Awards Act the decisions of the Indian Courts on similar or analogous provisions contained in the would not be of any help to decide questions arising under the Foreign Awards Act
495B H 496A C Balabux Agarwalla vs Shree Luchminarain Manufacturing Co ILR 1948 Calcutta page 265 Gaya Electric Supply Co vs State of Bihar  at 579 580 held in applicable
16 Conditions 3 and 6 which are inter related and in substance bear upon the same aspects and also satisfied since firstly the language of the Arbitration Clause is wide enough to embrace the issue of arbitrability of the claims and secondly the phrase in section 3 of the Foreign Awards Act namely
in respect of any matter agreed to be referred to the arbitration cannot be given a narrow construction because a there is nothing in the section warranting the same
What matters are agreed to be referred to arbitration will depend upon what language is employed by the parties to the arbitration agreement and there is nothing in law or equity which prevents the parties from referring even the questions of existence validity or effect scope of the arbitration agreement itself to the arbitrators in fact Lord Porters  observations in Heymen vs Darwins Ltd and DAs J s view in Balabux Aggarwala s case show that the parties can do it and b the scheme of sections 3 and 7 of the Foreign Awards Act clearly suggests that the relevant phrase would include even questions of existence validity and effect scope of the arbitration agreement
496H497A F Shiva Jute Bailing Ltd vs Hindley Co  Khardah Company Ltd vs Raymon and Co India Private Ltd  443 Waverly Jute Mills Co vs Raymonand Co   Ms RN Ganekar and Co vs Hindustan Wires Ltd AIR 1974 SC 20319741 SCC 309 at 313 314 distinguished and held in applicable
21 Apart from the fact that the relevant rules of ICC particularly Rules 83 and 84 in terms confer jurisdiction upon the Arbitrations to decide questions as to the existence or validity of the Arbitration agreement contained in the commercial contract in the instant case since the parties to the underlying commercial contract have used the expressions arising out of or related to this contract in the Arbitration Clause XVII contained in the contract the parties clearly intended to refer the issue pertaining to the effect scope of the Arbitration Agreement to the Court of Arbitration of International Chamber of Commerce in other words the issue about the arbitrability of the three claims under reference has been referred
465E F 471G H 472A 22 Four propositions emerge very clearly from the authorities decided by the Indian Courts 470F a Whether a given dispute inclusive of the arbitrator s jurisdiction comes within the scope or purview of an arbitration clause or not primarily depends upon the terms of the clause itself it is a question of what the parties intend to provide and what language they employ 470G H b Expressions such as arising out of or in respect of or in connection with or in relation to or inconsequence of or concerning or relating to the contract are of the widest amplitude and content and include even questions as to the existence validity and effect scope of the arbitration agreement 471A B c Ordinarily as a rule an arbitrator cannot clothe himself with power to decide the questions of his own jurisdiction and it will be for the Court to decide those questions but there is nothing to prevent the parties from investing him with power to decide those questions as for instance by a collateral or separate agreement which will be effective and operative 471C d If however the arbitration clause so widely worded as to include within its scope questions of its existence validity and effect scope
is contained in the underlying commercial contract then decided cases have made a distinction between questions as to the existence and or validity of the agreement on the one hand and its effect scope on the other and have held that in the case of former those questions cannot be decided by the arbitrator as by sheer logic the arbitration clause must fall along with underlying commercial contract which is either non existent or illegal while in the case of the latter it will ordinarily be for the arbitrator to decide the effect or scope of the arbitration agreement ie to decide the issue of arbitrability of the claim preferred before him
471D F 444 Government of Gibralter vs Kenney and Anr  Heyman vs Darwins Ltd  Wilesford vs Watson 1873 L R 8 Ch
Appeals 473 quoted with approval
Dhanrajmal Gobindram vs Shamji Kalidas and Co 1961 3 SCR 1020 Khardah Company Ltd vs Raymon and Co India Private Limited   Jawahar Lal Burman vs Union of India   Waverly Jute Mills Co vs Raymon and Co   Balabux Agarwalla vs Sree Luchminarain Manufacturing Co ILR referred to
23 All the three claims referred by GEC to the Court of Arbitration of ICC do arise out of and are related to the commercial contract in fact the first two claims arise under the contract and squarely fall within the widely worded arbitration clause being article XVII contained in the commercial contract
The third claim for compensatory damages is directly closely and inextricably connected with the terms and conditions of the contract the payments to be made thereunder and the breaches thereof and since for adjudication thereof recourse to the contract would be necessary it is a claim arising out of and in any event related to the contract
The Arbitration Clause embraces even the question of its effect scope that is to say it embraces the issue of the arbitrability of the three issues
488D E 489A B 24 The contract does contain the obligation to pay future interests on the unpaid purchase price from June 30 1967 onwards till payment and the two claims of GEC for Unpaid Regular Interest and Delinquent Interest have been correctly preferred before the Court of Arbitration of ICC as arising not merely out of but under the contract
478D E A combined reading of the provisions in sub clause a bc of clause 3 of Article III and XIV B of the contract IGE 9584 clearly shows that the promissory notes are not the sole and exclusive repository of GEC s right to claim and receive further interest on unpaid price after June 30 1967 but that the contract itself provides for the obligation to pay such interest after that date till payment
476C D E G Admittedly interest on the purchase price at the agreed rate upto June 30 1967 was capitalised and included in the principal amount of each of the instalments represented by the concerned promissory note as mentioned in the schedule of payments given in Article III A 3b of the Contract
The form of the promissory note attached as Exhibit B  to the contract as also the promissory notes that were actually executed clearly contain a recital that Renusagar promises to pay to GEC interest thereon ie on the capitalised principal from June 301967 semi annually at the rate of 65 per annum on the last date of June  December in each year until paid
The recital in each of the Promissory Note bas to be in terms of the provision in Article III A 3 c of the commercial contract itself
Further Article XIV B clearly shows that the parties to the contract were contemplating to obtain from the Government of India Income Tax exemption on the interest income which GEC was going to receive from Renusagar under the contract and the provision is that the interest income on which tax exemption was being 445 sought is said to include capitalised interest and interest thereon that is to say interest on the amounts of the promissory notes which included capitalised interest which obviously means further interest on outstanding principal balance under the notes from June 30 1967 till payment
475F H 476A 477A F 25 The contention that if Renusagar had failed to execute promissory notes as required under the contract GEC would not have become entitled to receive or claim interest after June 30 1967 but would have had only a right to call upon Renusagar to execute such pro notes and to claim damages for failure to fulfil contractual obligations cannot be accepted
The question is not what rights GEC would have had on Renusagar s failure to execute that promissory notes as required but the question is whit the contract provides for
Sub clause c of clause 3 of Article III A provides for not merely the execution of promissory notes but that the promissory notes would also bear interest after June 30 1967
Further the very fact that the failure of Renusagar to execute promissory notes of course as required by the contract would have conferred a right of GEC to call upon Renusagar to execute such notes also shows that the obligation to pay interest after June 30 1967 till payment has been provided for by the contract
476D H Commissioner of Income Tax vs Ms Ogale Glass Works Ltd  1 SCR 185 HP Gupta vs Hira Lal   Bihari Diwan Singh vs Jaffe  Sons AIR 1922 Lahore 353 Dhiraj Lal vs Sir Jacob Behrens  Sons AIR 1933 Allahabad 74 Ms Vasavani Navji vs KPC Spinners AIR 1983 Madras 31 Ghewarchand vs Spinnerei Baillng Ltd AIR 1950 Calcutta 568 NOVA Jersey Knit Ltd vs Spinnerei 1977 2 All England Report 463 Monro vs Bognor Urban District Council 1914 15 Reprint All England Report 523 referred to
26 Neither the fact that the bank guarantee endorsed on each promissory note is restricted only to the payment of principal and interest on the note as per its terms and does not extend to or cover any residuary payment obligation contained in the contract dehors the promissory note nor the fact that GEC has filed a Suit No 786 of 1982 against UCO Bank in the Calcutta High Court to recover the million dollars for the interest as being due under the promissory notes read with guarantee lead to an inference that the cause of action arose only out of pro notes
Since the Bank guarantee is in connection with and endorsed on the promissory notes it would ordinarily refer to the obligation arising there under and not to any obligation arising under any other document and the question whether the contract contains such obligation to pay future interest must depend upon its contents and not upon what is not to be found in the bank guarantee
Again the suit against the UCO Bank is necessarily to be on the pro notes read with the guarantee the contract not being a document to which UCO Bank is a party
477F H 478A B Similarly it is the substance of GEC s pleading notice of intention to arbitrate that matters and not the description of the claims
Though at one place in the Notice of Intention to arbitrate the two claims are in fact only the first claim of 21 million US dollars is said to be on the promissory notes yet at the commencement of that notice the subject matter thereof is 446 aptly stated as Reg Interest under the contract No IGI 9584 between GEC and Renusagar and the substance of the entire pleading shows how the first two claims have arisen under the contract and how under the terms thereof and in the correspondence their amounts got adjusted and quantified at certain figures and that reference the contract is not by way of any antecedent or historical fact
Viewed from any angle the two claims cannot be said to arise under the Promissory Notes
478B E 27 Whether a negotiable instrument taken on account of debt operates as absolute discharge of the debt or not is always a question of intention of the parties to the commercial contract
Here the promissory notes on the terms of the Contract cannot be regarded as amounting to payment in discharge of the obligation arising under the Contract on the ground that since it is one of the modes of payment indicated in the Contract the execution of the notes should be held to be payments by way of discharging the obligation under the contract because there is yet one mode of payment indicated the contract namely the opening of a Letter of Credit and the mere fact of the Letter of Credit having been opened by Renusagar in a bank in New york valid for 18 months will have to be regarded as actual payment which is hardly arguable
Further a Bill or a promissory note can never go in the discharge of a debt unless it is a part of a contract that it shall be so478F H481E F Commissioner of Income Tax vs Kameshwar Singh of Darbhanga AIR  Keshav Mills Co Ltd vs Commissioner of Income Tax AIR 1950 Bombay 166 quoted with approval
Commissioner of Income Tax vs Ms Ogale Glass Works Ltd AIR 1 SCR 185 HP Gupta vs Hira Lal  discussed and distinguished
28 The terms of the contract far from showing that these were payments in discharge of the original obligation clearly indicate that the parties had intended that these were to operate as conditional payments
481F G If Article III of the contract which deals with the topic of payment of price for the sale of goods and services is carefully analysed the following factors emerge very clearly a that the pro notes area not expressed to be payments in fact it is in terms stated that the total contract purchase price shall be paid by the purchaser in lawful money of the USA Article III A and promissory notes are not lawful money of USA b that because the Contract so provides even the pro notes also recite that the principal and interest there under are payable in lawful money of the USA c that Article III A 3 which deals with pro notes provides for payment of the remaining 90 of the price in accordance with the following Schedule of Payments and expressly states that the obligation to make such payments is to be evidenced by four series of purchaser s unconditional negotiable promissory notes which clearly shows that the pro notes are not payments but are intended merely to be the evidence of the obligation to pay the price d that though stated to be unconditional and negotiable perhaps so between the drawer and subsequent assigness in case of negotiation as between the seller and the purchaser these have been made 447 subject to several conditions such as i the amounts thereof were payable only on the assumption that deliveries of items of equipment were completed within 15 months of Contract Effective Date and interest at the rate of 65 was to become 6 on receipt of income Tax exemption article III A 3 b ii these were to lie in Escrow Agreements to be released to the seller synchronizing with the stated progress of supply of goods according to certain formulate article III D iii these were to be replaced by fresh Notes depending on receipt of income tax exemption article III A 3 f or price modification article IIID iv each one contains a default clause saying upon default in the prompt and full payment of the principal or of the interest on this Note when due all of the notes in each and every series together with interest to the date of payment shall immediately become due and be payable at the option and demand of the holder thereof
481G H 482A H These factors and circumstances and particularly the fact that these notes were as between the seller and the purchaser subject to several conditions leading to variation and adjustment and replacement and the default clause contained in each clearly indicate that these were not intended to constitute independent or separate contracts by themselves but that they were a part and parcel of one integrated transaction embodied in the contract and that the promissory notes were and are meant to be governed at all times by various other terms of the Contract and could be modified and substituted under given conditions as set out in the Contract
Therefore a dispute of non payment of interest on the instalments whether regular of delinquent is a dispute relating to the Contract In fact both the claims 21 million US dollars and US  78415184 arise under the contract and have been preferred by GEC before the Court of Arbitration of ICC expressly on that basis and not under the promissory notes
483AE The Court in view of the above adopted Non liquet on the submission for the appellant based on the so called factors of unconditional nature and negotiability of the promissory notes as destroying the arbitrability of the claims thereunder and also the alternative submission for GEC that the two claims would still fall within the wide expressions occurring in the contract even on the assumption that the promissory notes are severable from the Contract that the obligation arising thereunder is different from the one under the Contract and that these promissory notes are in payment of the obligation to pay the price under the contract 483E G 29 As regards the third claim of compensatory damages the mere fact that Renusagar is being saddled with this liability as tort feaser a stake holder andor a constructive trustee by itself will not justify a conclusion that the same is not covered by the arbitration clause because the question is not whether the claim lies in tort but the question is whether even though it has lain in tort it arises out of or is related to the Contract that is to say whether it arises out of the terms of the Contract or is consequential upon any breach thereof
483G H 484A The third claim is based on and is consequential upon and by way of corollary to the non payment of the two detained amounts by Renusagar to GEC in breach of the terms of the contract
Therefore before adjudicating upon this claim the adjudicating authority will have first to adjudicate 448 upon the first two claims preferred by GEC and only if it is found that GEC is entitled to receive the first two amounts which ought to have been paid by the appellant under the terms of the contract but which Renusagar had failed to pay that this third claim could if at all be allowed to GEC
In the real sense therefore this third claim is directly closely and inextricably connected with the terms and conditions of the Contract the payments to be made thereunder and the breaches thereof and as such will have to be regarded as a claim arising out of or related to the contract
484A C Woolf vs Collis Removal Service 1947 2 All
E R 260 Astro Vencedor Compania Naviera SA of Panama vs Mabanaft G M b h Govt
of Gibralter vs Kenney  Anr
quoted with approval
Alliance Jute Mills Co Ltd vs Lal Chand Dharanchand and Another  Union of India vs Salweeh Timber Construction India  Ors
 Ruby General Insurance Co Ltd vs Peary Lal Kumar   referred to
Monro vs Bognor Urban District Council 1914 15 Reprint All
R 523 Ghewarchand vs Shiva Jute Bailing Ltd AIR 1950 Cal
568 distinguished
The question as to whether a claim based on tort is a claim de hors the contract which contains the arbitration clause or is directly or inextricably connected with the contract has to be decided on the facts of each case and the language used in the arbitration clause
488G H 31 The contention that even assuming that arbitrability of the three claims falls within the wide ambit of the arbitration clause and that therefore Renusagar s suit is in respect of a matter agreed to be referred to the arbitration within the meaning of section 3 in law that is under the law of Forum being the Indian law in the instant case the issue of arbitrability of claim cannot be finally determined by the arbitrators but must rest with the court and therefore Renusagar s suit cannot be stayed under section 3 cannot be accepted in the face of the scheme envisaged in the Foreign Awards Act
498C D 32 The scheme that emerges on a combined reading of sections 3 and 7 of the Foreign Awards Act clearly contemplates that questions of existence validity or effect scope of the arbitration agreement itself in cases where such agreement itself in cases where such agreement wide enough to include within its ambit such questions may be decided by the arbitrators initially but their determination is subject to the decision of the court and such decision of the court can be had either before the arbitration proceedings commence or during their pendency if the matter is decided in a section 3 petition or can be had under section 7 after the award is made and filed in the Court and is sought to be enforced by a party thereto
All that the condition 3 of section 3 requires is that the legal proceedings must be in respect of 449 a matter agreed to be referred to the arbitration and there is no warrant to add further words namely agreed to be referred to the arbitration for final determination 500H 501AD 33 There is nothing in the general law of arbitration either English or Indian which prevents the arbitrators or on umpire from deciding questions of their own jurisdiction provisionally or tentatively and to proceed to make their awards on that basis though their own jurisdiction would be subject to the final determination by the court and if the court takes a contrary view their award will not be given effectto and this is exactly the scheme of the Foreign Awards Act
502E F Attorney General for Manitoba vs Kelly and Ors at 275 Dalmia Dairy Industries Ltd vs National Bank of Pakistan 1978 2 Lioyed LR 223 at page 292 293 Becker Auto Radio s case 1978 585 Federal 2nd series page 39 R Prince and Co vs Governor General in Council AIR 1955 p 240 at page 242 Municipal Board vs Eastern UP Electricity Supply Co Ltd and Ors
AIR 1958 see 506 at page 510 Ms Jagan Nath Phool Chand vs Union of India and Ors AIR 1982 Delhi 93 at page 97 and 98 Vallabh Pitti vs Narsinpdas 65 Bombay LR 20 held in applicable
Further the statement that many national arbitration laws allow the arbitrator to give a provisional ruling on his competence in order not to delay the arbitration and to alleviate dilatory tactics by obstructing respondents is borne out in regard to the general law of arbitration both English and Indian by several decisions
Similarly there is no difference between English law and Indian law on the point that an arbitration agreement which empowers an arbitrator to decide the question of its existence validity or effect scope is neither invalid nor void
502G H 504 A Dalmia Dairy Industries Ltd vs National Bank of Pakistan 1978 2 Lloyed LR 223 at page 292 293 Brown vs Oesterreichischer Walbesitzer R Gmbh 1954 1 QB P 8 Lunada Exportadora and Ors
vs Tamari and Sons and Ors
1967 2 Llyod s Rep 353 364 Vallabh Pitti vs Narsingdas 65 Bombay
LR 20 Pannallal Sagoremull vs Fatey Chand Muralidhar  Fertilizer Corporation of India vs Chemical Construction Corporation 75 Bombay Law Reporter 335 referred to
However in cases where the arbitration clause contained in the underlying commercial Contract is so widely worded as to include within its scope the questions cases have made a distinction between questions as to the its existence or validity of the agreement on the one hand and its effect scope on the other and have held that in the case of the former those questions can not be decided by the arbitrators as by sheer logic the arbitration clause must fall along with the underlying commercial contract which is either non existent or illegal while in the case of the latter it will ordinarily be for the arbitrators to decide the effect scope of the arbitration agreement for the reasons that a conceptually challenge to the existence of validity of the arbitration agreement con 450 tained in an underlaying commercial contract is fundamentally different from an inquiry into the scope and effect of such agreement in as much as the former goes to the root of the arbitration agreement whereas the latter presuppose that the arbitration agreement exists in fact and in law and the inquiry is then undertaken as to its true scope and effect b whenever the question of arbitrators  jurisdiction depended upon the scope and effect of the agreement courts have readily directed the parties to go before the arbitrators
504H 505A B D F Heyman vs Darwin Ltd1942 AC 356 Jawahar Lal Burman vs Union of India   Water Supply Service India P Ltd vs The Union of India and Ors
 AIR 1971 SC 2083 at 2085 Willesford vs Watson 1873 LR 8 Ch
App 473 referred to
36 A stay of the suit either under section 3 of the Foreign Awards Act or under section 34 of the may have the effect of finally disposing of the suit for all practical purpose
But that is no reason why the relief of stay should be refused by the Court if the concerned legal provision requires the Court to do so
Here section 3 itself indicates that the proper stage at which the Court has to be fully satisfied about these conditions is before granting the relief of stay in a section 3 petition and there is no question of the court getting satisfied about these conditions on any prima facie view or a pro tanto finding thereon Parties have to put their entire material before the Court on these issues which ever may be raised and the Court has to record its finding thereon after considering such material
507D G Though section 34 of the confers a discretion upon the Court in the matter of granting stay of legal proceedings where there is an arbitration agreement before granting the stay the court has to satisfy itself that arbitration agreement exists factually and legally and that the disputes between the parties are in regard to the matters agreed to be referred to arbitration these aspects fall within the phrase if satisfied that there is no reason why the matter should not be referred  occurring therein
The Court under section 34 must finally decide these issues before granting stay
507H 508A B Where on an application made under section 34 of the for stay of a suit an issue is raised as to the formation existence or validity of the contract containing the arbitration clause the Court is not bound to refuse a stay but may in its discretion on the application for stay decide the issue as to the existence or validity of the arbitration agreement even though it may involve incidentally a decision as to the validity or existence of the parent contract
If this is the position under section 34 of the which confers discretionary power upon the court a fortiori the Court acting under section 3 of the Foreign Awards Act must decide such issues at that stage when the grant of stay is obligatory
1975 2 All
ER 549 Anderson Wright Ltd vs Moran and Co 1955 1 SCR 862 Khushiram vs Hantumal at page 518 referred to
510B C In the instant case the issue pertained to the arbitrability of the three claims under the Arbitration clause in the contract and depended 451 upon the proper construction thereof in the light of the conduct of the parties an surrounding circumstances and no prejudice was caused to any of the parties as both Renusagar s application for injunction and GEC s stay petition under section 3 were heard together and parties did put before the court Trial court the Appeal court and even Supreme Court the entire material such as each wanted to rely upon and sought a decision on the concerned issue and therefore the prayer for injunction restraining arbitration sought by Renusagar was rightly refused
The triable issue raised in the suit having been found upon against Renusagar no question of balance of convenience survives
510E F The Court directed that the decision of issue of arbitrability of three claims will have to be regarded as final conclusive and binding and that issue would not arise before the Court of arbitration of ICC and even if it is raised it would be purely academic 510G H