IN THE HIGH COURT OF GUJARAT AT AHMEDABAD FIRST APPEAL No 1787 of 2002 with CIVIL APPLICATIONS No.6301, 6556 and 8562 of 2002 For Approval and Signature: Hon'ble MR.JUSTICE KSHITIJ R.VYAS Sd/- and Hon'ble MR.JUSTICE D.H.WAGHELA Sd- ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? 1 & 2 YES; 3 to 5 NO -------------------------------------------------------------- NIRMA LTD Versus LURGI ENERGIE UND ENTSORGUNG GMBH & OTHERS -------------------------------------------------------------- Appearance: 1. First Appeal No. 1787 of 2002 MR DUSHYANT A. DAVE with MR RAKESH GUPTA and MR K.M.THAKKER for M/S TRIVEDI & GUPTA for Appellant. MR JP SEN and MR ROBIN JAISANGHANI with MR JAL SOLI UNWALA and MR RS SANJANWALLA for Respondents. -------------------------------------------------------------- CORAM : MR.JUSTICE KSHITIJ R.VYAS and MR.JUSTICE D.H.WAGHELA Date of decision: 19/12/2002 C.A.V. JUDGEMENT (Per : MR.JUSTICE D.H.WAGHELA) 1. This appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (for short 'the Act') read with Section 96 of the Code of Civil Procedure is preferred from the judgment and order of the learned District Judge, Bhavnagar in Civil Miscellaneous Application No.46 of 2002 filed by the appellant herein for setting aside the "First Partial Award" dated 8.4.2002 of the International Court of Arbitration of the International Chamber of Commerce (ICC) in ICC Arbitration Case No.11396/TE between the appellant and the respondent No.1 herein. The other respondents herein are the members of the Arbitral Tribunal. For the sake of convenience, the appellant (original petitioner) is described hereinafter as "NIRMA" and the respondent No.1 is described as "LURGI". The impugned judgment rejecting the prayer to set aside the award held the application therefor to be not maintainable on the ground that the impugned arbitral award only refuses to accept the plea of jurisdiction raised by NIRMA and such decision of the arbitral tribunal could not be said to be an interim or partial award for the purpose of Section 34 of the Act. 2. The relevant facts, in brief, are that, on 1.9.1997, NIRMA entered into "Know-how and Supervision Agreement" with LURGI (Lentjes Energitechnik GmbH of Germany) which, inter alia, contained the clauses as under: "Article XV: ARBITRATION: 15.1 If, at any time any question/dispute or difference whatsoever shall arise between LENTJES and NIRMA out of or in connection with this Agreement, the same shall be finally settled by arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC). The place of arbitration shall be London and arbitration proceedings shall be carried out in English. Article XVI: GENERAL CONDITIONS: 16.2 The Agreement shall be governed according to the laws of India. " 2.1 On 12.12.1997 and thereafter, NIRMA and LENTJES ENERGY (INDIA) PVT.LTD. (LEI), a wholly owned subsidiary of LURGI, entered into other agreements for engineering, supply, erection and commissioning of boilers for which technical know-how was to be given by LURGI to NIRMA under the aforementioned agreement. Differences and disputes had arisen during the operation of those subsequent agreements and arbitration proceedings were commenced in India in which parties on both sides made claims and counter-claims. During the pendency of such arbitration proceedings, on 29.1.2001, LURGI invoked arbitration under the first "Know-how and Supervision Agreement" for an award, in substance, directing NIRMA to pay DM 6,02,962 as shortfall in the contract value, DM 4,61,020 on account of extra work and DM 29,65,945 on account of escalation of costs, each with interest @ 8% per annum and costs of the arbitration proceedings. This was alleged to be a counter-blast to the arbitration commenced in India at the instance of NIRMA. 2.2 Upon the latter arbitration getting under way, the Secretariate of the ICC transmitted after hearing the parties, the signed Terms of Reference documents to the International Court of Arbitration. According to the provisional time-table, preliminary point of jurisdiction encapsulated in issues 5.1 and 5.2 of the Terms of Reference as raised by NIRMA was to be dealt with first. Those issues read as under: "5.1 Has the Arbitral Tribunal jurisdiction ? In answering this question, the following sub-issues should be addressed:- 5.1.1 Did a question/dispute or difference arise out of or in connection with the Know-how Agreement, that would entitle the claimants to invoke Art.15.1 ? And if so, when ? 5.1.2 Does the Tribunal have jurisdiction over the present matter notwithstanding the existence of the pending Indian arbitral proceedings ? 5.2 If the answer to Issue 5.1 above is in the affirmative, then, should the Arbitral Tribunal continue to deal with the claim and the counterclaim or otherwise treat the counterclaim as withdrawn without prejudice to any right to raise the counterclaim at a later stage or in another forum ?" 2.3 After considering the submissions of the parties on the above issues, the Tribunal made the impugned first partial award in which the final decision was in the following terms: "7. THE DECISION OF THE ARBITRAL TRIBUNAL: Having carefully considered all the written and oral submissions made in respect of Issues No. 5.1 and 5.2, as defined in the Terms of Reference document in this arbitration, signed on 21st September 2001, the Arbitral Tribunal now finds, holds, determines and orders as follows:- 7.1 A "question/dispute or difference" has arisen on 17th January 2001 out of or in connection with the Know-How Agreement, which entitle the claimants to invoke Art.15.1, and the Arbitral Tribunal has jurisdiction over the present arbitral proceedings notwithstanding the existence of the pending Indian arbitral proceedings. 7.2 Notwithstanding the existence of the Indian arbitral proceedings, the Arbitral Tribunal should proceed to deal with the Claimant's claims. 7.3 All issues of costs in connection with this Partial Award are hereby reserved." 3. As seen earlier, the challenge to the above First Partial Award under Section 34 of the Act was turned down only on the ground that that award was in essence a decision on the plea that the arbitral tribunal did not have jurisdiction or was exceeding the scope of its authority and the scheme of the Act did not permit challenge to such a decision where the arbitral tribunal had not accepted the plea. Thus, the challenge to jurisdiction of the arbitral tribunal was not examined on merits and the contentions of the parties in the present appeal were also, therefore, restricted to maintainability of the application under Section 34 of the Act. 4. Mr.Dushyant Dave, the learned senior counsel appearing for NIRMA, was at pains to convince the Court that the arbitral award sought to be challenged was for all intent and purposes a final award on a part of the subject-matter which had to be challenged immediately under Section 34 of the Act. He submitted that one of the main objectives of the Act, as stated in the Statement of Objects and Reasons as given in the Arbitration and Conciliation Bill, 1995, was to ensure that arbitral tribunal remains within the limits of its jurisdiction. He submitted that arbitral award includes an interim award by definition. He submitted that the impugned award was, by agreement of the parties and according to the ICC Rules, an award which also satisfied all the attributes enumerated in Section 31 of the Act. Section 31 expressly permits making of an interim arbitral award during the arbitral proceedings and appeal from the impugned award not being available under Section 37, recourse to a court under Section 34 was the only remedy. He pointed out that under the provisions of sub-section (3) of Section 34, an application for setting aside the award cannot be made after three months of the receipt of the award and delay even for sufficient cause would bar the remedy after a further period of 30 days. Under the provisions of Sections 35 and 36, the award would be final and binding and enforceable as a decree after the time for making an application to set it aside has expired or such application is rejected. Therefore, the challenge to the impugned award on the most vital issue, the verdict on which would cast a shadow on the entire arbitral proceeding and the subsequent awards, should be decided at this stage and it ought not to have been spurned, according to the submission. 5. Mr.J.P.Sen, learned counsel for LURGI, submitted that the impugned award rendered by the ICC Tribunal having its seat at London in the United Kingdom, which State is a party to the New York Convention, is a 'foreign award' and cannot be challenged in an Indian court by way of a petition under Section 34 of the Act; that the challenge was validly waived in view of the ICC Rules and that, in any event, the arbitral award is only a decision rejecting a jurisdictional plea and as such it is not open to challenge under Section 34 of the Act. He submitted that the English Arbitration Act, 1996 applied in all cases where the seat of arbitration was in England, and as such the appellant's remedy was under Section 67 of the English Act which provides for challenge to any award of the arbitral tribunal including an interim award deciding upon its own jurisdiction. The impugned award could have been challenged within a period of 28 days under the English Act and the appellant has not done so. He submitted that the enforcement in India of a New York Convention award can be opposed on the grounds set out in Section 48 of the Act which are substantially similar to the grounds available to challenge a domestic award under Section 34. However, since no award has been rendered on merits, no occasion has arisen for LURGI to enforce any award in India. If and when such an occasion arises, the appellant would have an opportunity to resist enforcement of such award under Section 48 of the Act. It is repeatedly asserted in his written arguments also that a decision rejecting jurisdictional plea is not an award within the meaning of Section 34. Thus, the jurisdiction of the Indian court is called into question on the premise that the impugned award is a 'foreign award' made in a convention country and not a domestic award to which Part I of the Act applies. He submitted that if the award in question were to be treated as a domestic award, an anomalous situation would arise insofar as it would be enforceable under Section 36 on the one hand and being properly a 'foreign award' within the definition of Section 44, its enforcement could also be resisted under Section 48 even as, on the other hand, it could also be challenged in the country where it is rendered. 5.1 Elaborating his arguments, Mr.Sen submitted that, even assuming that Part I of the Act applied to the arbitration in the instant case, the parties had waived recourse against arbitral award by virtue of the provisions of sub-section (8) of Section 2 read with Art.28 (6) of the ICC Rules of Arbitration, according to which, every award shall be binding on the parties and the parties shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made. And, even assuming that recourse under Section 34 was available, according to the scheme of the Act, the arbitral tribunal was required to continue with the arbitral proceedings and to make an award on merits if the jurisdictional plea was rejected. It was submitted in writing that the mere fact that the ICC arbitral tribunal has described its ruling rejecting the petitioner's jurisdictional plea as a "partial award" does not make it an "award" within the meaning of, or capable of being challenged under, Section 34. The ICC arbitral tribunal has conveniently described its ruling as a "partial award" only in view of the prevailing practice in England and the provisions of the English Arbitration Act, 1996. Under the English Act, an arbitral tribunal may render an award on jurisdiction under Section 31 which may be challenged under Section 67. 6. The learned counsel relied upon several judgments of various courts in support of the submissions to which reference will be made hereinafter. The issues which emerge at this stage can be identified and articulated as under: (a) Whether the Indian court would have jurisdiction to entertain an application for setting aside the impugned partial award ? and (b) Whether an application to set aside the impugned partial award was maintainable under Section 34 of the Act ? 7. Before dealing with the critical controversy created by the facts of the case and the contentions of the learned counsel, it would be advantageous to take an overview of the relevant provisions of the Act. 7.1 The Arbitration and Conciliation Act, 1996 is, by its preface, an Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto. Whereas the United Nations Commission on International Trade Law (UNCITRAL) had adopted the Model Law on International Commercial Arbitration and the General Assembly of the United Nations recommended that all countries gave due consideration to the said Model Law, the Indian law was enacted after taking into account the aforesaid Model Law. According to its Statement of Objects and Reasons, the main objectives, inter alia, were: to comprehensively cover international commercial arbitration as also domestic arbitration, to ensure that the arbitral tribunal remained within the limits of its jurisdiction, to minimise the supervisory role of courts in the arbitral process as also to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a convention-country will be treated as a foreign award. The words "arbitral award" are defined to include an interim award and the term "award" is left undefined. The Act is divided into four parts of which Part I compulsorily applies where the place of arbitration is in India. However, according to sub-sections (4) and (5) of the same Section 2, Part I, subject to exceptions, applies to every arbitration under any other enactment and, subject to that and save insofar as provided otherwise by any law or any agreement in force between India and any other country, Part I applies to all arbitrations and to all proceedings relating thereto. If an award is made under Part I, it has to be considered as a domestic award. The derogable provisions of Part I can be waived by agreement, which waiver may also be through adoption of arbitration rules by agreement. Section 5 of the Act, opening with a sweeping non-obstante clause, declares the policy that no judicial authority shall intervene, except where so provided in Part I, in matters governed by that part. Chapter II and III of Part I of the Act are related to Arbitration Agreement and the composition of arbitral tribunal. Chapter IV entitled "Jurisdiction of Arbitral Tribunals" provides in Section 16 for competence of arbitral tribunal to rule on its own jurisdiction. A plea that the arbitral tribunal does not have jurisdiction or a plea that the arbitral tribunal is exceeding the scope of its authority, has to be raised at an early opportunity and the arbitral tribunal has to decide on such a plea. Where such a plea is rejected, the arbitral tribunal is required to continue the arbitral proceedings and make an arbitral award. An express provision in sub-section (6) of Section 16 is made to afford an opportunity to challenge such award in accordance with Section 34. Under sub-section (2) of Section 19, the parties to the arbitration agreement are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings, subject to the provisions of Part I. Sub-section (6) of Section 31 allows the making of an interim arbitral award on any matter with respect to which final award could be made. Under Section 32, the arbitral proceedings shall be terminated by final arbitral award or by an order of the arbitral tribunal under sub-section (2) thereof. Section 34 provides for recourse to a court against an arbitral award only by an application for setting aside such award in accordance with sub-sections (2) and (3) thereof which provide for the grounds and the period of limitation. Sub-section (4) provides for giving an opportunity to the arbitral tribunal to eliminate the grounds for setting aside the award. According to Sections 35 and 36, the award shall be, subject to the provisions of Part I, final and binding and shall be enforced as a decree of the court. Chapter IX provides for appeals and in that no appeal is provided against a decision rejecting the plea that arbitral tribunal did not have jurisdiction or the plea that it was exceeding the scope of its authority. 7.2 Part II of the Act defines in Section 44 "Foreign Award" of which the essential attributes are that: (a) It is an arbitral award on difference between persons, arising out of legal relationship, whether contractual or not, considered as commercial under the law in force in India; (b) It is made on or after the 11th day of October, 1960 in pursuance of an agreement in writing for arbitration to which the Convention set forth in the first schedule applies; and (c) It is made in one of such territories as the Central Government may, by intimation in the Official Gazette, declare to be territories to which the said Convention applies. Section 46 declares that the foreign award enforceable under Chapter I, Part II shall be treated as binding for all purposes on the persons as between whom it was made and may accordingly be relied on by any of those persons by way of defence, set-off or otherwise in any legal proceedings in India and provisions relating to enforcement of such foreign award would include reliance upon such award. Section 48 enumerates the conditions for enforcement of foreign awards which practically provide the grounds for nullifying the effect of a foreign award. Section 49 provides that upon satisfaction of the Court about enforceability of a foreign award, it shall be deemed to be a decree of that court. As observed by the Supreme Court in SUNDARAM FINANCE LTD. v. NEPC INDIA LTD. [AIR 1999 SC 565], interpretation of the Act should not be based on provisions of the old Act but on Explanatory Notes and analysis of the UNCITRAL Model Law. 8. The judgment in SUMITOMO HEAVY INDUSTRIES LTD. v. O.N.G.C. LTD. [ (1998) 1 SCC 305 ] was relied upon for the proposition that the law which would apply to the filing of the award, its enforcement and to its setting aside, would be the law governing the agreement to arbitrate and the performance of that agreement. Deciding upon the area of operation of curial law, the Supreme Court held that curial law operates during the continuance of the proceedings before the arbitrator to govern the procedure and conduct thereof. The courts administering the curial law have the authority to entertain applications by parties to arbitrations being conducted within their jurisdiction for the purpose of ensuring that the procedure that is adopted in the proceedings before the arbitrator conforms to the requirements of the curial law and for reliefs incidental thereto. Such authority of the courts administering the curial law ceases when the proceedings before the arbitrator are concluded. The need to challenge an award arises if it is being enforced and the enforcement process is subsequent to and indpendent of the proceedings before the arbitrator. It is not governed by the curial or procedural law that governed the procedure that the arbitrator followed in the conduct of the arbitration. The proper law governing the arbitration in that case being the law of India, it was held that the courts in India were entitled to receive the awards made in United Kingdom. 8.1 In NATIONAL THERMAL POWER CORPORATION (NTPC) v. SINGER COMPANY [ (1992) 3 SCC 551 ], it is held that where the proper law of contract is expressly chosen by the parties, as in the present case, such law must in absence of an unmistakable intention to the contrary, govern the arbitration agreement which, though collateral or ancillary to the main contract, is nevertheless a part of such contract. The overriding principle is that the courts of the country whose substantive laws govern the arbitration agreement are the competent courts in respect of all matters arising under the arbitration agreement and the jurisdiction exercised by the courts of the seat of arbitration is merely concurrent and not exclusive and strictly limited to matters of procedure. All other matters in respect of the arbitration agreement fall within the exclusive competence of the courts of the country whose laws govern the arbitration agreement. It is categorically held in paragraphs 27 and 33 as under: "27. The proper law of the contract in the present case being expressly stipulated to be the laws in force in India and the exclusive jurisdiction of the courts in Delhi in all matters arising under the contract having been specifically accepted, and the parties not having chosen expressly or by implication a law different from the India law in regard to the agreement contained in the arbitration clause, the proper law governing the arbitration agreement is indeed the law in force in India, and the competent courts of this country must necessarily have jurisdiction over all matters concerning arbitration. Neither the rules of procedure for the conduct of arbitration contractually chosen by the parties (the ICC Rules) nor the mandatory requirements of the procedure followed in the courts of the country in which the arbitration is held can in any manner supersede the overriding jurisdiction and control of the Indian law and the Indian courts." "33. An international commercial arbitration necessarily involves a foreign element giving rise to questions as to the choice of law and the jurisdiction of courts. Unlike in the case of persons belonging to the same legal system, contractual relationships between persons belonging to different legal systems may give rise to various private international law questions such as the identity of the applicable law and the competent forum. An award rendered in the territory of a foreign State may be regarded as a domestic award in India where it is sought to be enforced by reason of Indian law being the proper law governing the arbitration agreement in terms of which the award was made. The Foreign Awards Act, incorporating the New York Convention, leaves no room for doubt on the point." 8.2 In the context of the provisions of the old Arbitration Act, 1940 and the Foreign Awards (Recognition and Enforcement) Act, 1961, it is observed that an award is "foreign" not merely because it is made in the territory of a foreign State but because it is made in such a territory on an arbitration agreement not governed by the law of India. The Foreign Awards Act contained a specific provision to exclude its operation to what may be regarded as a "domestic award" by virtue of Section 9 which said that nothing in that Act shall apply to any award made on an arbitration agreement governed by the law of India. Such foreign awards were held to be amenable to the jurisdiction of Indian courts and controlled by the Indian system of law just as in the case of any other domestic award, except that the proceedings held abroad and leading to the award were in certain respects amenable to be controlled by the public policy