Case: Videocon Industries Ltd Vs. Union Of India

Government of India owns petroleum resources within the area of Indias territorial waters and exclusive economic zones. Respondent No.2 is an arm of the Ministry of Petroleum and Natural Gas. On 28.10.1994, a PSC was executed between respondent No.1 on the one hand and a consortium of four companies consisting of Oil and Natural Gas Corporation Limited, Videocon Petroleum Limited, Command Petroleum (India) Private Limited and Ravva Oil (Singapore) Private Limited (hereinafter referred to as "the Contractor") in terms of which the latter was granted an exploration licence and mining lease to explore and produce the hydro carbon resources owned by respondent No.1. Subsequently, Cairn Energy U.K. was substituted in place of Command Petroleum (India) Private Limited and the name of the Videocon Petroleum Limited was changed to Petrocon India Limited, which merged the appellant - Videocon Industries Limited. For the sake of convenience, the relevant clauses of Articles 33, 34 and 35 of the PSC are extracted below:"33.1 Indian Law to GovernSubject to the provisions of Article 34.12, this Contract shall be governed and interpreted in accordance with the laws of India.33.2 Laws of India Not to be ContravenedSubject to Article 17.1 nothing in this Contract shall entitle the Contractor to exercise the rights, privileges and powers conferred upon it by this Contract in a manner which will contravene the laws of India.34.3 Unresolved DisputesSubject to the provisions of this Contract, the Parties agree that any matter, unresolved dispute, difference or claim which cannot be agreed or settled amicably within twenty one (21) days may be submitted to a sole expert (where Article 34.2 applies) or otherwise to an arbitral tribunal for final decision as hereinafter provided.34.12. Venue and Law of Arbitration AgreementThe venue of sole expert, conciliation or arbitration proceedings pursuant to this Article, unless the Parties otherwise agree, shall be Kuala Lumpur, Malaysia, and shall be conducted in the English language. Insofar as practicable, the Parties shall continue to implement the terms of this Contract notwithstanding the initiation of arbitral proceedings and any pending claim or dispute. Notwithstanding the provisions of Article 33.1, the arbitration agreement contained in this Article 34 shall be governed by the laws of England.35.2 AmendmentThis Contract shall not be amended, modified, varied or supplemented in any respect except by an instrument in writing signed by all the Parties, which shall state the date upon which the amendment or modification shall become effective."4. In 2000, disputes arose between the respondents and the contractor with respect to correctness of certain cost recoveries and profit. Since the parties could not resolve their disputes amicably, the same were referred to the arbitral tribunal under clause 34.3 of the PSC. The arbitral tribunal fixed 28.3.2003 as the date of hearing at Kuala Lumpur (Malaysia), but due to outbreak of epidemic SARS, the arbitral tribunal shifted the venue of its sittings to Amsterdam in the first instance and, thereafter, to London. In its meeting held on 29.6.2003 at Amsterdam, the arbitral tribunal issued various directions in Arbitration Case No.1 of 2003. On the next day, the arbitral tribunal issued similar directions in Arbitration Case Nos.2 and 3 of 2003. On 19.8.2003, the arbitral tribunal issued revised time schedule for filing of the statement of claim, reply and counter claim, reply to counter claim, documents, affidavit of admission and denial of documents in Arbitration Case No.3 of 2003 and fixed the case for further proceedings to be held at London on 12.12.2003. By another order dated 30.10.2003, the arbitral tribunal directed that the hearing of the application filed by the claimants for taking on record the supplementary claim will take place at London on 15.11.2003, on which date, the following order was passed in Arbitration Case No.3 of 2003:"By consent of parties, seat of the Arbitration is shifted to London.Parties will deposit Rs.25,000 each as administrative cost with the Presiding Arbitrator."5. Thereafter, the following proceedings were held by the arbitral tribunal at London:(i) 6.2.2004 - Interim Award pronounced in Case No.1 of 2003 pronounced.(ii) 7.2.2004 - proceedings held in Arbitration Case No.2 of 2003.(iii) 17.3.2004 - Case No.2 of 2003 fixed for 13-19.5.2004 for final arguments.(iv) 17.3.2004 - Case No.3 of 2003 fixed for recording of evidence from 3.6.2004 to 9.6.2004.(v) 17.3.2004 - Case No.3 of 2003 fixed for arguments from 20-26.7.2004.(vi) 27.3.2004 - final arguments rescheduled to 16-20.5.2004 in Case No.2 of 2003.(vii) 25.11.2004 - Arbitral Tribunal declared that it will pass award in Case No.2 of 2003 and further partial award in Case No.1 of 2003.(viii) 3.2.2005 - Case No.2 of 2003 fixed for 25-26.2.2005 for hearing on the application for clarification filed on behalf of the Government of India.(ix) 12.3.2005 - The Tribunal declared that it will finalise the award in Case No.3 of 2003 and cross-objections in Case No.1 of 2003.(x) 31.3.2005 - Partial award passed in Case No.3 of 2003.6. Respondent No.1 challenged partial award dated 31.3.2005 by filing a petition in the High Court of Malaysia at Kuala Lumpur. On being noticed, the appellant questioned the maintainability of the case before the High Court of Malaysia by contending that in view of clause 34.12 of the PSC only the English Courts have the jurisdiction to entertain any challenge to the award.7. After filing the petition before the High Court of Malaysia, the respondents made a request to the tribunal to conduct the remaining arbitral proceedings at Kuala Lumpur, but their request was rejected vide order dated 20.4.2006 and it was declared that the remaining arbitral proceedings will be held in London.8. At that stage, the respondents filed OMP No.255 of 2006 under Section 9 of the Act in Delhi High Court for stay of the arbitral proceedings. They filed another OMP No.329 of 2006 questioning award dated 31.3.2005 on the issue of exchange rate. The appellant objected to the maintainability of OMP No.255 of 2006 and pleaded that the Courts in India do not have the jurisdiction to entertain challenge to the arbitral award. The learned Single Judge of the Delhi High Court overruled the objection of the appellant and held that the said High Court has the jurisdiction to entertain the petition filed under Section 9 of the Act. The learned Single Judge extensively referred to the judgment of this Court in Bhatia International v. Bulk Trading S.A. (2002) 4 SCC 105  and observed:"The ratio of Bhatia International, in my understanding, is that the provisions of Part-I of the Indian Arbitration Act would apply to international commercial arbitrations held outside India, unless the parties by agreement express or implied, exclude all or any of its provisions.It is noteworthy that the respondent, while challenging the jurisdiction of this Court to entertain the present petition, has not disputed the applicability of Part I of the Indian Arbitration Act to international commercial arbitrations held outside India. It is not the case of the respondent that section 9 of the Indian Arbitrations Act does not apply to international commercial arbitrations held outside India. What, in fact, learned senior counsel for the respondent has sought to contend before this Court is that the parties herein, by adopting the English Law as the proper law governing the arbitration agreement, have expressly excluded the applicability of the Indian Arbitration Act, and consequently, this Court has no jurisdiction to entertain the present petition. This contention of the respondent has been resisted by learned senior counsel for the petitioner on the ground that English law governs the substantive aspects of the arbitration agreement, whilst the procedural aspect thereof is governed by the curial law, that is, the procedural law of the country where the seat of arbitration is. It is thus contended by learned senior counsel for the petitioner that the juridical seat of arbitration being in Kuala Lumpur, it is the Malaysian laws that would govern the conduct of the arbitral proceedings. Learned senior counsel for the respondent has countervailed the said averment of the petitioner by submitting that London, and not, Kuala Lumpur is the `designated seat of arbitration in view of the order dated 15.11.2003 passed by the Arbitral Tribunal whereby the Arbitral Tribunal recorded the consent of the parties and shifted the seat of arbitration to London. In view of the petitioner having already conceded to London as the juridical seat of arbitration, it is thus contended by learned counsel for the respondent that the petitioner cannot know insist on Kuala Lumpur being the seat of arbitration. The averments made by the respondent, without prejudice to the veracity thereof, entail an examination on merit and thus cannot be accepted at this preliminary stage. Whether the Courts at Kuala Lumpur or London have the jurisdiction to decide upon the seat of arbitration squarely hinges on the procedural law governing the arbitration agreement. However, in a peculiar situation such as the present one where the governing procedural law is yet to be determined, I am of the view that a question regarding the seat of arbitration can be best decided by the Court to which the parties or to which the dispute is most closely connected. It is important to recall that in the instant case the parties have expressly stated in Article 33.1 of the PSC that the laws applicable to the contract would be the laws in force in India and that the "Contract shall be governed and interpreted in accordance with the laws of India". 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 India that the PSC was executed. The form of the PSC is closely related to the system of law in India. It is also apparent that the PSC is to be performed in India with the aid of Indian workmen whose conditions of service are regulated by Indian laws. Moreover, whilst the petitioner is an important portfolio of the Government of India, the respondent is also a company incorporated under the Indian laws. 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 or the "proper law" (in the words of Dicey) 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 matters.There is no gainsay that the Courts observe extreme circumspection whilst affording relief under section 9 of the Indian Arbitration Act, lest the annals of party autonomy and sanctity of the arbitral tribunal - the hallmarks of any arbitration - are jeopardized. It is to be appreciated that the object underlying the grant of interim measures under section 9 of the Indian Arbitration Act is to facilitate and sub serve any ongoing arbitral proceedings.It is much apparent that the disparate stands taken by both parties qua the seat of arbitration has resulted in a veritable impasse in the arbitral proceedings in the present case. The petitioner has brought to our notice that the proceedings initiated by it at the High Court Kuala Lumpur challenging the Partial award have been virtually brought to a standstill owing the objections raised by the respondent on grounds of jurisdiction. The petitioner has already expressed its dissidence about the English Court deciding the question of seat of arbitration for the reason that for the English Court to assume jurisdiction, it is the place of arbitration which is the relevant factor. In such a situation, of the Indian Court does not adjudicate upon the present petition, the arbitral proceedings between the parties will invariably end in a stalemate. This, I am afraid, would not only be inimical to the interests of the parties but also affront to section 9 of the Indian Arbitration, the underlying object whereof is to sub serve and facilitate arbitral proceedings."

Court's reasoning:
18. In our opinion, the learned Single Judge of Gujarat High Court had rightly followed the conclusion recorded by the three-Judge Bench in Bhatia International v. Bulk Trading S.A. (supra) and held that the District Court, Vadodara did not have the jurisdiction to entertain the petition filed under Section 9 of the Act because the parties had agreed that the law governing the arbitration will be English law.19. In the present case also, the parties had agreed that notwithstanding Article 33.1, the arbitration agreement contained in Article 34 shall be governed by laws of England. This necessarily implies that the parties had agreed to exclude the provisions of Part I of the Act. As a corollary to the above conclusion, we hold that the Delhi High Court did not have the jurisdiction to entertain the petition filed by the respondents under Section 9 of the Act and the mere fact that the appellant had earlier filed similar petitions was not sufficient to clothe that High Court with the jurisdiction to entertain the petition filed by the respondents.