Case: Avitel Post.Studioz Limited Vs. Hsbc Pi Holdings (Mauritius) Limited

1. In brief, the background in which the present Appeal is filed is as under :The appellants herein were the petitioners before the learned Single Judge who filed two petitions under Section 34 of the Arbitration and Conciliation Act, 1996 (for short "the Arbitration Act"), impugning Arbitral awards dated 27th September 2014 and 17th December 2012 in Arbitration Nos. 088 of 2012 and 690 of 2015 respectively.2. In order to expand the business of the appellants, appellants intended to raise funds through private equity investors desirous of investing in the petitioners company which was known for consistent profit making and dividend paying Company. An affiliate of the respondents Company known as "HAV3" was anin the petitioner Company, therefore, had first right for further issuance of shares by the petitioners company. On persuasion from respondent no.3 that further funds must be taken through them, the present respondent was introduced to them by HAV3. Though several offers came from different globally renowned Private Equity Funds for investing at a much higher valuation, the appellants had to heed to the demand of HAV3 since they had first right for further investment. The appellant no.1 is a Company incorporated under the provisions of the Companies Act, 1956 having its registered office at Mumbai. Respondent is a Company incorporated under the laws of Mauritius and has its registered office at Mauritius. The respondent is an Investment Holding Company for the Principal Investments Asia Division of HSBC. On 21st April 2011, the appellants and the respondents entered into Share Subscription Agreement (hereinafter referred to as "SSA"). Again on 6th May 2011, the first appellant, respondent and their promoters and HAV3 Holdings (Mauritius) Ltd, and their investors entered into a Share Holders Agreement (hereinafter referred to as "SHA").3. Respondent seems to have invoked arbitration agreements in SSA as well as SHA on 11th May 2012. Singapore International Arbitration Centre (SIAC) was seized of Arbitration Nos.088 of 2012, 089 of 2012 respectively. In those proceedings, the respondent sought emergency reliefs under the relevant arbitration provisions of SIAC 2010 Rules. One Mr. Thio Shen Yi, S.C. was appointed as emergency arbitrator. An interim award in SSA and SHA arbitrations respectively came to be made on 28th and 29th May 2012, thereby freezing of the accounts of the appellants, requiring them to disclose to HSBC Mauritius all that information regarding their assets and deliver the said information came to be directed. The emergency arbitrator also allowed various expenses to be borne by the appellants. In this context, the respondent called upon the first appellant to make their share of payment towards the first tranche of deposit.4. On 17th December 2012, the Arbitral Tribunal passed an unanimous partial award in the SSA arbitration holding jurisdictional challenge of the appellants against them and declared that Indian law was not governing the law of arbitration, and it was Singapore law that governed the arbitration agreements. It also opined that allegations of fraud and/or complicated issues of fact and law also be arbitrated under Singapore law. It also held that Arbitral Tribunal at Singapore had jurisdiction to adjudicate the dispute arising under the SSA between the petitioner and the respondent. Similarly, on 15th March 2013, the Arbitral Tribunal passed an unanimous award in SHA arbitration by rejecting the challenge of the appellants so far as the jurisdictional challenge and declared that Singapore law determines the jurisdiction of the tribunal based on Section 11 of the Singapore International Arbitration Act read with Article 34 of Model Law. It further opined that Singapore law takes into its fold the arbitrability of disputes including the issues of fraud, and proceeded to hold that the claims made by the respondent against the appellants were not contrary to Singapore public policy, therefore, such claims were arbitrable. A final award came to be made in both the matters.5. The respondents herein filed Arbitration Petition No.1062 of 2012 before this Court, inter alia, seeking various interim measures against the appellants herein which was seriously opposed by the appellants on various grounds including the ground of maintainability of the said Arbitration Petition filed under Section 9 of the Arbitration Act. The learned Single Judge granted interim relief in favour of the respondent Company by an order and judgment dated 22nd January 2014 by which learned Single Judge restrained the appellants from withdrawing the amounts retained in the Corporation Bank to an extent of 60 Million US $. Though a Special Leave Petition came to be filed impugning the said judgment and order of the learned Single Judge before the Apex Court, on raising objection by the respondents herein that an Appeal was permissible under Section 37(1)(a) of the Arbitration Act, the appellants hereunder withdrew the said Special Leave Petition seeking liberty to challenge the impugned order by way of Appeal before the Division Bench of this High Court. The said prayer was allowed. An Appeal No.190 of 2014 was preferred before the Division bench of this Court, impugning the judgment in Arbitration Petition No.1062 of 2012. The said Appeal was partly allowed and substituted the operative part of the learned Single Judge by directing the appellants herein to deposit thein the Corporation Bank account of the petitioners so as to maintain the balance only to an extent of 30 Million US $ within a period of four weeks from the date of order dated 31st July 2014. Rest of the directions in the judgment dated 22nd January 2014 were sustained. Said judgment and order dated 31st July 2014 is under challenge before the Supreme Court and the Special Leave Petition is pending.

Reasoning: 20. National Thermal Power Corporation Ltd. v. Singer Company (supra), is relied upon by appellants counsel by placing reliance on paras 237. It is contended that the normal practise would be the proper law of the arbitration agreement is generally the same as the proper law of the contract, and only in exceptional cases, it need not be so where the proper law of the contract is expressly chosen by the parties. According to him, a presumption would arise where there is no express choice of the law governing the contract as a whole or the arbitration agreement as such, and in such event, presumption may arise that the law of the country where the arbitration is agreed to be held is the proper law of the arbitration agreement. He also contends that so far as the validity of the arbitration agreement, including the effect and the interpretation are governed by its proper law, and such law will decide whether the arbitration clause is wide enough to cover the dispute between the parties. He also stresses upon the fact that parties have freedom to choose the law governing an International Commercial Arbitration Agreement, and further contends that where the proper law of the contract is expressly chosen by the parties, such law must, in the absence of an unmistakable intention to the contrary, govern the arbitration agreement which, though collateral or ancillary to the main contract, nevertheless a part of such contract. When proper law of the contract between the parties expressly stipulated to be the laws in force in a particular country and exclusive jurisdiction of the Courts at a particular place, the parties not having chosen expressly or by implication a law different from Indian Law in regard to the agreement contained in the arbitration clause, the proper law governing the arbitration clause is indeed the laws in India.21. Appellants counsel also banks upon Sumitomo Heavy Industries Ltd v. ONGC Ltd (supra). This was a case where parties to the contract/agreement belonging to different countries agreed upon that arbitrability of the dispute to be determined in terms of the law governing the arbitration agreement and the arbitration proceeding has to be conducted in accordance with the curial law and after rendering of the award, enforcement thereof has to be again in accordance with the law governing the arbitration agreement. Learned counsel for the appellants places reliance on paragraph no.10 of the said judgment to contend that the law governing the contract creating substantive rights of the parties in respect of which the dispute has arisen, the proper law of the arbitration agreement, the law governing the obligation of the parties to submit the disputes to arbitration and to honour the award must be the Curial law i.e. the law governing the conduct of the individual reference. He further emphasizes that where there is absence of express agreement, a strong presumption arises that parties intended the curial law to be the law of the seat of the arbitration. According to him, the enforcement process is entirely different since it is subsequent to and independent of the proceedings before the arbitrator since the need to challenge the award arises only if it is being enforced.22. Respondents counsel drew our attention to Bhatia International v. Bulk Trading S.A,(supra), paragraph no.32 wherein their Lordships opined that provisions of Part 1 would apply to all arbitrations and to all proceedings relating thereto when such arbitration is held in India. The provisions of Part 1 would compulsorily apply and parties are free to deviate only to extent permitted by the derogable provisions of Part I. In case, international arbitrations were held outside India, provisions of Part 1 would apply unless the parties by agreement, express or by implication, exclude all or any of its provisions. In such situation, depending on the terms of agreement, the laws/rules/regulations agreed upon by the parties would prevail. Therefore, it was opined that any provision from Part 1 which is contrary to or excluded by that law or rules will not be applicable.23. In Harmony Innovation Shipping Limited v. Gupta Coal India LimitedAnr, (supra) the litigation was in respect of foreign seated international commercial arbitration. The issue arose was whether judgment referred in Bharat Aluminium Company v. Kaiser Aluminum Technical Services Inc (supra), would apply. Their Lordships in unequivocal terms opined that since there was ample material indicating the intention of the parties through various phrases used in the arbitration agreement, with regard to seat of arbitration, who should be arbitrators and the contract to be governed and construed according to which law, therefore, opined that the seat of arbitration will be at London, and further opined that the contract be governed and construed according to the English law. They further opined that the clauses in the arbitration agreement should be looked into to understand whether a particular clause in question is substantial arbitration clause or a curial/procedural one. Ultimately, opined that law laid down in Bharat Aluminium Company v. Kaiser Aluminum Technical Services Inc (supra) is not applicable to agreements entered into prior to 6th September 2012 (date of decision of said case), and opined that the law rendered in Bhatia International v. Bulk Trading S.A (supra) is applicable. They further opined that the clear unambiguous terms/clauses stipulated in the arbitration agreement clearly points out juridical seat being London and ouster of jurisdiction of Indian Courts.24. So far as Reliance Industries LtdAnr v. Union of India (supra), in this case, the Apex Court in detail referred to the law which would be applicable to the filing of the award, enforcement of award, and also the law which provides for setting aside the agreement to arbitrate and the performance of parties.25. In Reliance Infrastructure Ltd. Mumbai v. Roadway Solution (I) Pvt. Ltd, Pune (supra), it was held that the parties to the agreement having agreed to a place of arbitration for all disputes arising out of the said agreement shall be subject to jurisdiction of Mumbai Court. Since no challenge was made to said terms and clauses of agreement, therefore, such terms and clauses are binding on the parties.26. Going through the above decisions, terms of two agreements SSA and SHA, one has to see what happens in the present case with reference to the terms of two agreements in the light of above judgments.27. So far as factual situation in the earlier proceedings, learned Single Judge as well as Division Bench in the proceedings filed under Section 9 of Arbitration Act opined that in the light of jurisdictional award and interim award being made by Arbitral Tribunal between the same parties arising out of the same agreement in the arbitration proceedings at Singapore determines the jurisdiction of the Arbitral Tribunal, and in the partial award dated 17th December 2012, it is declared that the parties are governed by Singapore law in terms of arbitration agreement.28. In the present case, after detail discussion of the judgment of the Single Judge and Division Bench in the earlier proceedings, learned Single Judge was justified in opining that there is finality so far as interpretation of some clauses of SSA and SHA. On perusal of the terms of agreement, clause 16.1.2 clearly mentions that the seat of arbitration shall be Singapore. 16.1.6First Part clearly indicate that parties have waived their right to apply to any Court of law for determination on any preliminary point of law/review any question of law and merits only in so far as such waiver. They further agree that such waiver shall not be deemed to have included waiver of right to challenge any award on the ground that the Tribunal lacks substantive jurisdiction or the grounds of serious irregularity affecting the Tribunal, the proceedings or the award to the extend allowed by the law of the seat of arbitration. In other words, since the seat of arbitration was Singapore, the parties reserve right to challenge award on the ground that the Tribunal lacks substantive jurisdiction or there exists serious irregularity affecting the proceedings, etc alone.29. 16.4 clearly indicate application of Arbitration Act of 1996. It clearly says except for the purpose of Section 9, provisions of Part 1 of Indian Arbitration and Conciliation Act, 1996 shall not apply to the terms of the agreement. From reading of the above terms, it is crystal clear that seat of arbitration is at Singapore and the parties have waived the right to apply to any Court of law with regard to preliminary point of law as indicated at 16.1.6 except right to challenge award on the ground that the Tribunal lacks jurisdiction, etc. Definitely, this does not mean that the provisions ofof Arbitration Act shall apply to the terms of the agreement.30. So far as SHA is concerned, the agreement shall be governed by the laws of Republic of India without regard to applicable conflict of laws principles. Clause 19.1 refers to arbitration at SIAC in accordance with the SIAC administered arbitration Rules that were in force. Again, clause 19.4 provides that except invoking provisions of section 9 of Arbitration and Conciliation Act, 1996, the entireof the 1996 Act is not applicable. Therefore, reading both the agreements with reference to the above clauses, it is crystal clear that 16.4 of SSA can be considered as an amendment to 16.1.1, and 16.1.6 carves out exception to an exception. Reading of clause 16.4 along with clause 19 of SSA and 19.4 of SHA, there is no scope to understand the terms agreed between the parties otherwise. In other words, except invoking provisions of Section 9 of Arbitration Act, the entire Part 1 of Arbitration Act of 1996 (Indian Law) is expressly excluded, thereby any challenge made under Section 34 cannot be entertained in terms of law applicable in India. Parties have expressly excluded application of Part 1 of 1996 Act, except provisions of Section 9 of Part 1 of Arbitration Act, 1996.