Case: National Termal Power Corporation Vs. The Singer Company

2. The National Thermal Power Corporation (the NTPC) appeals from the judgment of the Delhi High Court in FAO (OS) No. 102 of 1990 dismissing the NTPCs application filed under Section 14, 30 and 33 of the Arbitration Act, 1940 (No. X of 1940) to set aside an interim award made at London by a tribunal constituted by the International Court of Arbitration of the International Chamber of Commerce (the "ICC Court") in terms of the contract made at New Delhi between the NTPC and the respondent - the Singer Company (the Singer) for the supply of equipment, erection and commissioning of certain works in India. The High Court held that the award was not governed by the Arbitration Act, 1940; the arbitration agreement on which the award was made was not governed by the law of India; the award fell within the ambit of the Foreign Awards (Recognition and Enforcement) Act, 1961 (Act 45 of 1961) (the Foreign Awards Act); London being the seat of arbitration, English courts alone had jurisdiction to set aside the award; and, the Delhi High Court had no jurisdiction to entertain the application filed under the Arbitration Act, 19403. The NTPC and the Singer entered into two formal agreements dated August 17, 1982 at New Delhi. The General Terms and Conditions of Contract dated February 14, 1981 (the General Terms) are expressly incorporated in the agreements and theylaws applicable to this Contract shall be the laws in force in India. The Courts of Delhi shall have exclusive jurisdiction in all matters arising under this contract." (7.2)The General Terms deal with the special responsibilities of foreign contractors and Indian contractors. The Singer, being a foreign contractor, is governed by the provisions relating to the foreign contractors. The general Terms further provide for settlement of disputes by amicable settlement, failing which by arbitration4. Sub-clause 6 of Clause 27 of the General Terms deals with arbitration in relation to an Indian contractor and sub-clause 7 of the said clause deals with arbitration in respect of a foreign contractor. The latter provision says"27. 7 In the event of foreign contractor, the arbitration shall be conducted by three arbitrators, one each to be nominated by the owner and the contractor and the third to be named by the President of the International Chamber of Commerce, Paris. Save as above all rules of conciliation and arbitration of the International Chamber of Commerce shall apply to such arbitrations. The arbitration shall be conducted at such places as the arbitrators may determine."2 The arbitration shall be conducted in accordance with the provisions of the Indian Arbitration Act, 1940 or any statutory modification thereof. The venue of arbitration shall be New Delhi, India."Settlement of Disputes. - It is specifically agreed by and between the parties that all the differences or disputes arising out of the contract or touching the subject-matter of the contract, shall be decided by process of settlement and arbitration as specified in Clauses 26.0 and 27.0 excluding 27.6.1 and 27.6.2., of the General Conditions of the Contract."Being a foreign contractor, the provisions of sub-clause 6 of Clause 27 of the General Terms are not applicable to the Singer, but the other provisions of Clause 27 govern the present contract. Accordingly the dispute which arose between the parties was referred to an Arbitral Tribunal constituted in terms of the rules of arbitration of the ICC Court (the ICC Rules). In accordance with Article 12 of those rules, the ICC Court chose London to be the place ofIt is significant that the parties have expressly stated that the law which governs their contract, i.e., the proper law of the contract is the law in force in India and the courts of Delhi have exclusive jurisdiction in all matters arising under the contract. One of the clauses of the contract deals with arbitration (Clause 27 of the General Terms)

Court's reasoning:
19. Proper law is thus the law which the parties have expressly or implied chosen, or which is imputed to them by reason of its closest and most intimate connection with the contract. It must, however, be clarified that the expression proper law refers to the substantive principles of the domestic law of the chosen system and not to its doctrine of renvoi.In a case such as the present, there is no need to draw any inference about the intention of the parties, or to impute any intention of the parties or to impute any intention to them, for they have clearly and categorically stipulated that their contract, made in India to be performed in India, is to be governed by the laws in force in India and the courts in Delhi are to have exclusive jurisdiction in all matters arising under this contract (Clause 7). The cardinal test suggested by Dicey in Rule 180 is thus fullyThe 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 Indian 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 IndianIt is important to recall that in the instant case the parties have expressly stated that the laws applicable to the contract would be the laws in force in India and that the courts of Delhi would have exclusive jurisdiction "in all matters arising under this contract". They have further stated that the "contract shall in all respects be construed and governed according to Indian laws". These words are wide enough to engulf every question arising under the contract including the disputes between the parties and the mode of settlement. It was in Delhi that the agreement was executed. The form of the agreement is closely related to the system of law in India. Various Indian enactments are specifically mentioned in the agreement as applicable to it in many respects. The contract is to be performed in India with the aid of Indian workmen whose conditions of service are regulated by Indian laws. One of the parties to the contract is a public sector undertaking. The contract has in every respect the closest and most real connection with the Indian system of law and it is by that law that the parties have expressly evinced their intention to be bound in all respects. The arbitration agreement is contained in one of the clauses of the contract, and not in a separate agreement. In the absence of any indication to the contrary, the governing law of the contract (i.e., in the words of Dicey, the proper law of the contract) being Indian law, it is that system of law which must necessarily govern matters concerning arbitration, although in certain respects the law of the place of arbitration may have its relevance in regard to procedural matters45. It is true that an arbitration agreement may be regarded as a collateral or ancillary contract in the sense that it survives to determine the claims of the parties and the mode of settlement of their disputes even after the breach or repudiation of the main contract. But it is not an independent contract, and it has no meaningful existence except in relation to the rights and liabilities of the parties under the main contract. It is a procedural machinery which is activated when disputes arise between parties regarding their rights and liabilities. The law governing such rights and liabilities is the proper law of the contract, and unless otherwise provided, such law governs the whole contract including the arbitration agreement, and particularly so when the latter is contained not in a separate agreement, but, as in the present case, in one of the clauses of the mainThe decisions relied on by counsel for the Singer do not support his contention that the mere fact of London being the place of arbitration excluded the operation of the Arbitration Act, 1940 and the jurisdiction of the courts inobservations contained in that judgment do not support the contention urged on behalf of the Singer that merely because London was designated to be the place of arbitration, the law which governed arbitration was different from the law expressly chosen by the parties as the proper law of theIt is true that the procedural law of the place of arbitration and the courts of that place cannot be altogether excluded, particularly in respect of matters affecting public policy and other mandatory requirements of the legal system of that place. But in a proceeding such as the present which is intended to be controlled by a set of contractual rules which are self-sufficient and designed to cover every step of the proceeding the need to have recourse to the municipal system of law and the courts of the place of arbitration is reduced to the minimum and the courts of that place are unlikely to interfere with the arbitral proceedings except in cases which shock the judicialThe arbitration clause must be considered together with the rest of the contract and the relevant surrounding circumstances. In the present case, as seen above, the choice of the place of arbitration was, as far as the parties are concerned, merely accidental insofar as they had not expressed any intention in regard to it and the choice was made by the ICC Court for reasons totally unconnected with either party to the contract. On the other hand, apart from the expressly stated intention of the pretties, the contract itself, including the arbitration agreement contained in one of its clauses, is redolent of India and matters Indian. The despots between the parties under the contract have no connection with anything English, and they have the closest connection with Indian laws, rules and regulations. In the circumstances, the mere fact that the venue chosen by the ICC Court for the conduct of arbitration is London does not support the case of the Singer on the point. Any attempt of exclude the jurisdiction of the competent courts and the laws in force in India is totally inconsistent with the agreement between theIn sum, it may be stated that the law expressly chosen by the parties in respect of all matters arising under their contract, which must necessarily include the agreement contained in the arbitration clause, being Indian law and the exclusive jurisdiction of the courts in Delhi having be expressly recognised by the parties to the contract in all matters arising under it, and the contract being most intimately associated with India, the proper law of arbitration and the competent courts are both exclusively Indian, while matters of procedure connected with the conduct of arbitration are left to be regulated by the contractually chosen rules of the ICC to the extent that such rules are not in conflict with the public policy and the mandatory requirements of the proper law and of the law of the place of arbitration. The Foreign Awards Act, 1961 has no application to the award in question which has be made on an arbitration agreement governed by the law of India52. The Tribunal has rightly held that the "Substantive law of the contract is Indian law". The Tribunal has further held "the laws of England govern procedural matters in the arbitration53. All substantive rights arising under the agreement including that which is contained in the arbitration clause are, in our view, governed by the law of India. In respect of the actual conduct of arbitration, the procedural law of England may be applicable to the extent that the ICC Rules are insufficient or repugnant to the public policy or other mandatory provisions of the laws in force in England. Nevertheless, the jurisdiction exercisable by the English courts and the applicability of the laws of that country in procedural matters must be viewed as concurrent and consistent with the jurisdiction of the competent Indian courts and the operation of Indian laws in all matters concerning arbitration insofar as the main contract as well as that which is contained in the arbitration clause are governed by the laws of India54. The Delhi High Court was wrong in treating the award in question as a foreign award. The Foreign Awards Act has no application to the award by reason of the specific exclusion contained in Section 9 of the Act. The award is governed by the laws in force in India, including the Arbitration Act,