IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE PIUS C.KURIAKOSE & THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM THURSDAY, THE 8TH JULY 2010 / 17TH ASHADHA 1932 Arb.A.No. 7 of 2010 (B) --------------------------- OPARB.152/2009 of D.C., KOLLAM .................... APPELLANT/PETITIONER -------------------------- M/S. ABBAS CASHEW COMPANY, KALLUMTHAZHAM.P.O, KILIKOLLOR, KOLLAM A PARTNERSHIP CONCERN REPRESENTED BY ITS PARTNERS ANZAR, KALLUMTHAZHAM.P.O, KILIKOLLOOR, KOLLAM & MUHAMMED NAJEEB, -DO- BY ADV. SRI.N.D.PREMACHANDRAN SRI.D.AJITHKUMAR SMT.LALIZA.T.Y. RESPONDENT(S)/RESPONDENTS: ------------------------------------- 1. M/S. BOND COMMODITIES, 111, UPPER RICHMOND ROAD, PUTNEY, LONDON, SW 15 2TJ 2. M/S. BOND COMMODITIES (INDIA) SONAL LINK ESTATE, UNIT 2, 228, LINK ROAD, MALAD (W), MUMBAI - 400 064. ADV. SRI.T.R.ASWAS(CAVEATOR) THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 08/07/2010, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: PIUS C. KURIAKOSE & C.K.ABDUL REHIM, JJ. ----------------------------------------------- Arb. Appeal No. 7 of 2010 ----------------------------------------------- Dated this the 8th day of July, 2010 J U D G M E N T Pius C. Kuriakose, J. The appellant company, an exporter of cashew, is aggrieved by the order of the District Court, Kollam dismissing an original petition filed by them under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Indian Arbitration Act) for setting aside the award passed by the Arbitral Tribunal and also for a declaration that the award is unenforceable as the same is made in violation of the principles of public policy of India and for incidental reliefs. The appellant entered into an agreement with the first respondent, a British Company for export of cashew through the second respondent company, Indian counter part of the first respondent company. Since dispute arose between the parties over violation of the agreement, the parties referred to matter to arbitration. As Arb. A. No. 7 of 2010 -2- per the agreement entered into between them and in pursuance to the reference the arbitrators passed an award. The original petition under Section 34 of the Arbitration and Conciliation Act was filed as O.P. No. 152 of 2009 by the appellant before the District Court alleging that the award is against the public policy of India, is illegal, is against evidence on record, that the arbitrators are biased and that the award has been passed violating the procedure established by law. Along with the O.P. the appellant filed I.A. No. 458 of 2009 seeking stay of further proceedings in pursuance to the award and I.A. No. 459 of 2009 seeking to call for the records from the arbitrators. The first respondent company filed counter affidavit to I.A. No. 458 of 2009 disputing many of the allegations made in the application and contending that the O.P. is not maintainable as the appellant company cannot approach the court without exhausting the remedy of appeal provided in the agreement Arb. A. No. 7 of 2010 -3- between the parties. According to the first respondent, the appellant company's act amounted to frog-leap. Once the company had agreed to a procedure, the company cannot be allowed to deviate from that procedure. On the basis of the contentions raised, the learned District Judge heard the parties regarding the maintainability of the original petition. The learned District Judge referred to clause (10) of the agreement and found that the above clause provides for an appeal to the Executive Committee of CENTA against the arbitration award. The learned District Judge would then refer to Section 34 of the Indian Arbitration Act and would opine that there is nothing in Section 34 which prohibits an appeal by agreement. According to the learned District Judge the parties did agree to confer upon the Executive Committee of CENTA the power to decide the appeal. The District Judge noticed that the right of appeal should be exercised only after complying with certain Arb. A. No. 7 of 2010 -4- conditions. 2. According to the District Judge though the conditions were onerous as the conditions were engrafted by the parties with open eyes and realising the difficulties, they are not entitled to urge that because of the conditions are onerous, the right of appeal is not a meaningful right. To take such a view the learned District Judge relied on the judgment of the Madras High Court in M.A. Sons v. M. O. & S. Exchange (MR 1965 Madras 392). The learned District Judge would hold on the authority of the judgment of the Supreme Court in Datar Switchgears Ltd. v. Tata Finance Ltd. and Another (2000(8) SCC 151) that the parties are free to choose the procedure and would hold that having chosen the procedure it is not open to the parties to blame the procedures so chosen. The appellant relied on the judgment in Montrose Canned Food Ltd. v. Eric Wells (Merchants) Ltd. (1965 Vol.1 Page 597), a decision wherein Arb. A. No. 7 of 2010 -5- it was held that whether or not a party should exhaust the remedy of appeal provided to him under the agreement before challenging the award of the Arbitral Tribunal in the court, was a matter of discretion. According to the learned District Judge the above decision is not an authority for the proposition canvassed by the appellant for the reason that in the case covered by the above decision there was no provision like clause(10) of the present agreement. Ultimately analysing the rival contentions raised, the learned District Judge concluded that the legislative intendment underlying the Indian Arbitration Act 1996 was that an effective and quick method of settlement of domestic and international arbitration disputes should be brought forth, as otherwise the economic reforms introduced by the executive Government in the era of globalisation will not become fully effective. The learned District Judge would refer to Section 5, a non-obstante Arb. A. No. 7 of 2010 -6- clause providing that judicial intervention in arbitration matters shall be to the limited extent provided under the Act. The learned Judge ultimately concluded that routine interference in arbitral processes under the powers conferred by Section 34 will render the legislative intendment of the statute nugatory and held that the appellant's right to move under Section 34 will become available to them only after they exhaust the appellate remedy provided under clause 10 and in that view of the matter dismissed the O.P. 3. In the appeal various grounds have been raised assailing the decision of the District Judge and Sri.N.D.Premachandran, the learned counsel for the appellant addressed very extensive arguments before us on the basis of all those grounds. Mr.Premachandran submitted that as per the definition of the term award provided under Section 2(1)(c) of the Indian Arbitration Act an arbitral Arb. A. No. 7 of 2010 -7- award includes an interim award also and that there is no dispute that the award passed by the arbitrator in this case also is not an arbitral award. Referring to Section 2(1)(f) of the Indian Arbitration Act, the learned counsel submitted that international commercial arbitration would also come within the ambit of the Indian Arbitration Act, 1996. Placing strong reliance on the judgment of the Supreme Court in Bhatia International v. Bulk Trading S.A. (2002(4) SCC 105), the learned counsel submitted that it has been very clearly held by the Supreme Court therein that the provisions of Part-1 of the Indian Arbitration Act which takes in Section 34 also, will apply to all arbitrations and all proceedings relating thereto wherever the arbitration is conducted. According to the learned counsel in cases of international commercial arbitration held outside India provisions of Part-1 including Section 34 would certainly apply unless the parties by agreement expressly or by Arb. A. No. 7 of 2010 -8- necessary implications exclude any of the provisions of Part- 1. Mr.Premachandran pointed out in this context that in Bhatia International v. Bulk Trading S.A. (cited supra) the Apex Court was considering the question of applicability of Section 9 of the Indian Arbitration Act in an international commercial arbitration and that as per the agreement between the parties in that case there was a clause that the arbitration was to be as per the Rules of ICC (International Chamber of Commerce) and the arbitration was to be held in Paris. Counsel submitted that the Apex Court did not accept the contention that because the parties have agreed for arbitration as per the rules of ICC Section 9 would not apply. The counsel pointed out that the ICC Rules did not contain any provision specifically excluding the Indian Courts as in the present agreement where there is no provision specifically excluding the Indian Courts. Sri.Premachandran referred also to the judgment of the Arb. A. No. 7 of 2010 -9- Supreme Court in Venture Global Engineering v. Sathyam Computer Services Ltd. (2008(4) SCC 190) and submitted that the Supreme Court in that case had followed the judgment in Bhatia International v. Bulk Trading S.A. (cited supra) and had held that the right of the judgment debtor under Section 34 to invoke the public policy of India cannot be deprived of. Referring to para 37 of the judgment, the learned counsel highlighted that it is clearly held by the Supreme Court that even a foreign award can be challenged in India under Section 34. Sri.Premachandran submitted that by passing the impugned order taking the view that the O.P. filed under Section 34 is not maintainable, the learned District Judge completely failed to consider the effect of the judgment of the Supreme Court in Bhatia International v. Bulk Trading S.A. (cited supra). Referring to the counter affidavit submitted by the respondents in the O.P. Sri.Premachandran submitted that the respondents have Arb. A. No. 7 of 2010 -10- clearly admitted that the District Court has jurisdiction under Section 34 and their contention was only that the jurisdiction can be invoked only after exhausting the appeal remedy. There was no plea of exclusion of jurisdiction of Indian Courts or exclusion of any of the provision of Part-1 of the Indian Arbitration Act in the counter. Sri.Premachandran argued that the provisions in Rule 10 of CENTA Rules do not have the power to oust the jurisdiction of Indian Courts or any provisions of Part-1 of the Indian Arbitration Act. Counsel submitted that neither in Section 34 nor in CENTA Rules there is a provision that unless appellate remedy is exhausted aggrieved party can approach the Civil Court challenging the award. Sri.Premachandran submitted that before the court below respondents do not rely at all on clauses 2 and 3 of the CENTA Rules or any of the provisions of the English Arbitration Law and much less Section 70(2) (b) of the English Arbitration Act. They are therefore, not Arb. A. No. 7 of 2010 -11- entitled to rely on those provisions before this Court as the above contention is beyond their pleadings before the court below. Sri.Premachandran submitted that at any rate these provisions do not have the effect of excluding the jurisdiction of Indian Courts. These provisions are applicable only for appointment of Arbitrators and for regulating the procedure to be followed by the Arbitrators. These provisions cannot have any application to the present post award stage. Sri.Premachandran submitted that there is no provision parallel to Section 70(2) of the English Arbitration Act in the Indian Arbitration Act prohibiting the parties from approaching the Civil Court before exhausting the appellate remedy. Hence, Section 70(2) of the English Arbitration Act cannot have application in this case. It can have application only when a party approaches the English Court challenging the award. According to Sri.Premachandran the two Supreme Court judgments does not make any distinction Arb. A. No. 7 of 2010 -12- between substantive law and procedural law relating to contract and arbitration. Hence, the contention that by clause 2 and 3 of the CENTA terms and conditions there is implied exclusion cannot be accepted at all. The theory of implied exclusion presently advanced by the respondents goes contrary to their admissions in the counter affidavit which are to the effect that Section 34 can be invoked but only after the appeal remedy is exhausted. Sri.Premachandran submitted that the contention presently raised only reveals that the respondents want to avoid scrutiny of the arbitral award by Indian Courts as the award has been passed with grave procedural irregularity in not appointing the umpire and in awarding damages to a party who has not performed as part of the contract and had not taken any letter of credit for buying the goods and coming to the conclusion that the contract is mutually extended. The term public policy of India is given wider interpretation Arb. A. No. 7 of 2010 -13- in decisions such as in O.N.G.C v. Saw Pipes Ltd. (2003(5) SCC 705) and Indtel Technical Services (P) Ltd. v. W.S.Atkins Rail Ltd. (2008(10) SCC 308). Mr.Premachandran reiterated his submissions that clauses 2 and 3 of CENTA Rules do not have effect of excluding any of the provision of Part-1 of the Indian Arbitration Act. By referring to the judgment of the Supreme Court in Citation Infowares Ltd. v. Equinox Corpn (2009(7) SCC 220) Mr.Premachandran once again highlighted the contention taken by the respondents before the court below that Section 34 of the Indian Arbitration can be invoked after the appeal remedy under clause-10 is exhausted. According to Mr.Premachandran, the District Judge failed to notice that it was relying on the judgments of the Supreme Court in Bhatia Intnl's case (cited supra) and Venture Global Engg. v. Satyam Computers (2008(4) SCC 190) that the O.P. was sought to be maintained by the appellant. The District Court Arb. A. No. 7 of 2010 -14- relied solely on clause 10 of CENTA Rules. But that court should have noticed that the above clause is against the legislative intendment underlying Arbitration Law which is to ensure that there is speedy and inexpensive justice to the party aggrieved. Referring to the judgment of the Supreme Court in Indtel Technical Services (P) Ltd. v. W.S.Atkins Rail Ltd. (2007(8) SCC 338), Mr.Premachandran submitted that the remedy of appeal provided under clause-10 of CENTA Rules is merely an empty formality and a futile exercise. The appellate body of the CENTA are members of the trade association and not a judicial authority or body vested with adjudicatory powers of a court as defined under Section 2(1) (e) of the Indian Arbitration Act. The appeal remedy under clause-10 can by no stretch of imagination be construed as an effective statutory remedy comparable to the remedy under Section 34. 4. Mr.Premachandran raised another argument that the Arb. A. No. 7 of 2010 -15- right under Section 34 to challenge the award on the grounds mentioned therein is a statutory right which cannot be taken away by contract between the parties. The agreement in the present case if has the effect of contracting out of Section 34 will be a void agreement in terms of Section 23 of the Indian Contract Act. Mr.Premachandran submitted that the decision of Queen's Bench Division in Montrose Canned Foods Ltd. v. Eric Wells (Merchants) Ltd. (1965 vol. 1 Page No.597) was not properly appreciated by the District Court and this has resulted in prejudice to the appellant. Mr.Premachandran further submitted that the excerpts from the judgment quoted by the learned Judge will show that the learned Judge did not appreciate the Queen's Bench decision correctly. Mr.Premachandran would distinguish the judgment in M.A. & Sons. v. M. O. & S. Exchange (AIR 1965 Madras 392) relied on by the learned District Judge by Arb. A. No. 7 of 2010 -16- pointing out that under the old Indian Arbitration Act there was no provision corresponding to the present Section 34. He also submitted that in that case at any rate it was not mandatory that the award amount is deposited for maintaining an appeal. Mr.Premachandran submitted that there cannot be any dispute regarding proposition laid down by the Supreme Court in Datar Switchgears Ltd. v. Tata Finance (2000(8) SCC 151) that parties are bound by their agreements. Here in the present case arbitration was conducted in terms of the agreement itself. The issue is only as to how the award can be challenged. Mr. Premachandran concluded his submissions by urging that unless this Court set aside the decision of the learned District Judge and holds that Section 34 will apply to a fact situation like the one that happened in this case, the plight of Indian industrialists who go in for arbitration by arbitrators governed by foreign law will be miserable. Arb. A. No. 7 of 2010 -17- 5. Sri.T.R.Aswas, the learned counsel for the respondent would resist all the submissions of Sri.Premachandran. He pointed out that the contract between the parties and the agreement for arbitration are specifically admitted by the appellant. The appellant participated in the arbitration proceedings and even raised a counter claim which was allowed to a certain extent under the award. Referring to clauses 2 and 3 of the terms and conditions of the CENTA Sri.Aswas submitted that those clauses will show that both for substantive law of contract and also for the procedural law relating to arbitration it is the law of England and the English Arbitration Act that should govern. Counsel referred to Section 70(2) of the English Arbitration Act which reads as follows:- “(2) An application or appeal may not be brought if the applicant or appellant has nor first exhausted- (a) any available arbitral process of appeal or review, and (b) any available recourse under Section 57 Arb. A. No. 7 of 2010 -18- (correction of award or additional award).” 6. Sri.Aswas referred to Rule 10 of Arbitration Rule of CENTA providing an in-house appeal submitted that so long as Section 70(2) of the Indian English Arbitration Act and Rule 10 of Arbitration Rule of CENTA apply it is obligatory that party aggrieved by the award has to exhaust any available arbitral process of appeal which in the instant case is the in house appeal. When we drew the attention of Sri.Aswas to the counter that was filed by the respondent before the court below which did not contain any contention to the effect that English Law alone can govern and Indian law or Indian courts cannot have anything to do with the case his answer was that being a purely legal question pertaining to jurisdiction it is open to the respondent to raise the point even before this Court. He would submit however, that as a special case respondents will agree that the remedy under Section 34 of the Indian Arbitration Act Arb. A. No. 7 of 2010 -19- can be availed of by the appellants once he has exhausted the in house namely under clause-10. Sri.Aswas did not dispute that the SC in Bhatia International's case (cited supra) has ruled that Indian Arbitration Act applies equally to International Commercial Arbitration unless the parties expressly or by implication excluded the same by agreement. According to Sri.Aswas clauses 2 and 3 of the terms and condition of CENTA which have been expressly agreed upon by the parties in this case amounts at least to exclusion of the Indian Arbitration Act by implication, if not expressly. According to Sri.Aswas, the Queen's Bench decision in Montrose Canned Foods Ltd. v. Eric Wells (Merchants) Ltd. (1965 vol. 1 Page No.597) cannot have any application in the present case for the reason that the above decision is of the year 1965. Sri.Aswas pointed out that both India and U.K. adopted U.N. CITRAL model law and enacted in 1996 itself. Their respective Arbitration Laws namely The Arb. A. No. 7 of 2010 -20- Arbitration and Conciliation Act 1996 in India and the Indian Arbitration Act 1996 in U.K. In terms of clause-3 of the terms and conditions of CENTA it is the English Arbitration Act which applies to the present case. 7. Sri.Aswas would argue that the judgment in Citation Infowares Ltd. Equinox Corporation (2009(7) SCC 220) relied on by Sri.Premachandran cannot have any application in the present case. According to him in that case there was agreement between the parties only to the effect that the substantive law governing the contract shall be the law of California. There was no agreement in that case as regards the law governing the Arbitration procedure. But in the present case there is clear agreement between the parties regarding both the substantive law of contract and the procedure of arbitration. According to Sri.Aswas the judgment of the Supreme Court in Indtel Technical Services v. W.S.Atkins Rail Ltd. (2008(10) SCC 308) also cannot be Arb. A. No. 7 of 2010 -21- applicable in this case for the same reason that in that case also there was agreement only regarding the substantive law of contract and no agreement regarding the procedural law pertaining to arbitration. Sri.Aswas would refer to the statements of objects and reasons accompanying the bill relating to the Arbitration and Conciliation Act 1996 placed before the Parliament and submitted that as per clause 4 and 5 one of the main objectives is to minimise the supervisory role of courts in arbitral proceedings. Sri.Aswas submitted that it is stated by the appellants themselves in the O.P. which they filed before the District Court that almost the entire cashew trade between Indian and U.K. are concluded as per CENTA terms and conditions. That being so, it is not open for the appellant to contend that only that part of CENTA rules relating to pre-award procedure will apply to him and not the other part pertaining to post award procedure. Sri.Aswas would refer to the following decisions Arb. A. No. 7 of 2010 -22- also in support of the various proposition advanced by him. 8. Jindal Exports Ltd. Fuerst Day Lawson Ltd. [2010(1) Arb. LR 1 (Delhi)]; Sime Darby Engineering Sdn. Bhd. v. Engineers India Ltd. (2009(7) SCC 545); Adhunik Steels Ltd. v. Orissa Manganese and Minerals Pvt. Ltd. (2007(7) SCC 125); Dowell Leasing & Finance Ltd. v. Radheshyam B. Khandelwal (2008(1) Arb. LR 512); K. V. Mohammed Zakir v. Regional Sports Centre (2009(9) SCC 357); Sail v. Gupta Brother Steel Tubes Ltd. (2009(10) SCC 63); Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn. Ltd. (2007(5) SCC 304). 9. He concluded his submissions by highlighting that the Supreme Court in Datar Switchgears Ltd. v. Tata Finance (2000(8) SCC 151) has clearly ruled that when parties entered into a contract and settled on a procedure due weight has to be given to the procedure agreed upon by the parties. Arb. A. No. 7 of 2010 -23- 10. We have very anxiously considered the rival submissions addressed at the Bar in the light of the pleadings raised by the parties and the ratio emerging from the various decisions cited before us. The main point which was urged before us by Sri.Premachandran was that the ratio of the judgment of the Supreme Court in Bhatia International v. Bulk Trading S.A. (2002(4) SCC 105) and in Venture Global Engg v. Satyam Computers (cited supra) were ignored by the learned District Judge. The ratio of the two decisions is only to the effect that Part-1 of the Indian Arbitration Act applies equally to international arbitrations held outside India unless the parties had expressly or by implication excluded the provisions of the Indian law by agreement. 11. Ext.R1 produced along with the counter affidavit filed in this Court by the respondent is the true copy of the terms and conditions of the CENTA which the appellant had Arb. A. No. 7 of 2010 -24- agreed to be binding. As per the terms of the contract Annexure-F produced along with the appeal Rules 2 and 3 are relevant and we quote the same as follows:- “Contracts wherever made or to be performed, and whatever the nationality or residence of the parties, shall be construed and governed by the law of England. Any dispute arising out of a contract subject to these terms and conditions, including any question of law arising in connection therewith, shall be referred to arbitration in London, or elsewhere if so