2012 Supreme(SC) 596

Supreme Court of India
S.H.KAPADIA, CJI., D.K. JAIN, SURINDER SINGH NIJJAR, RANJANA PRAKASH DESAI, JAGDISH SINGH KHEHAR, JJ.
Bharat Aluminium Co. Ltd. & Others
Versus
Kaiser Aluminium Technical Service, Inc.& Others
CIVIL APPEAL NO.7019 OF 2005 WITH CIVIL APPEAL NO.6284 OF 2004 WITH CIVIL APPEAL NO.3678 OF 2007 WITH TRANSFERRED CASE (C) NO.35 OF 2007 WITH SPECIAL LEAVE PETITION (C) NOS. 3589-3590 of 2009 WITH SPECIAL LEAVE PETITON (C) NOS. 31526-31528 of 2009 WITH SPECIAL LEAVE PETITON (C) NO. 27824 of 2011 WITH SPECIAL LEAVE PETITION (C) NO. 27841 of 2011
Decided on : 06-09-2012

IMPORTANT POINTS
The Arbitration Act, 1996 has accepted the territoriality principle adopted in the UNCITRAL Model Law.
Part I of the Arbitration Act, 1996 would have no application to International Commercial Arbitration held outside India.
There can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996.
Provision in Section 2(2) is not in conflict with any of the provisions either in Part I or in Part II of the Act.
In a foreign seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 or any other provision.
Part I of the Act is applicable only to all the arbitrations which take place within the territory of India.
The judgment in Bhatia International and in Venture Global Engineering overruled, but this overruling shall apply prospectively, to all the arbitration agreements executed hereafter.

Headnote:(a) Arbitration and Conciliation Act, 1996 – Section 1(2) and Proviso – As per section 1(2) the Act extends to whole of India, but the provisions relating to domestic arbitrations, contained in Part I, are not extended to the State of Jammu and Kashmir – Proviso to section 1(2) provides that that Parts I, III and IV shall extend to the State of Jammu and Kashmir only in so far as they relate to international commercial arbitration or, as the case may be, international commercial conciliation – Proviso to section 1(2) not stating that Part I of the Act would apply to Jammu & Kashmir only if the place of Arbitration is in Jammu & Kashmir – Merely on this basis it cannot be held that in Jammu & Kashmir, Part I would apply even to arbitration which are held outside India – Section 2(2) applies where the place of arbitration is in India – Since Section 2(2) of Part I applies to all arbitrations, the declaration of territoriality contained therein would be equally applicable in Jammu & Kashmir – Proviso to section 1(2) cannot be read as proviso to section 2(2) also – There is no anomaly or inconsistency in section 1(2) and 2(2). (Para 57, 58, 198)

       (2002) 4 SCC 105; 2008 (1) Scale 214 – Overruled

       (b) Arbitration and Conciliation Act, 1996 – Section 2(2) – UNCITRAL Model Law was taken into account in drafting of the Act – Both are not identically drafted – Model Law, and judgments and literature thereon cannot a taken as a guide to interpretation of the Act – Omission of word ‘only’ in section 2(2) – Not an instance of “casus omissus” – Supposed omission can only be supplied by Legislature – In statutory interpretation legislative surgery is neither a judicial option, nor compulsion – Interpretation of statutes. (Para 60, 61)

       (2002) 2 SCC 388; (2005) 8 SCC 618; 1953 SCR 533; (1980) 1 All ER 529 – Relied upon

       (c) Arbitration and Conciliation Act, 1996 – Section 2(2) – Interpretation – Application of Part I of the Act – Limited to arbitrations taking place in India or having their place/seat in India – By omitting word ‘only’ Parliament recognising the territorial principle. (Para 63)

       (d) Arbitration and Conciliation Act, 1996 – Section 2(2) r/w Article 1(2), UNCITRAL Model Law – Word ‘only’ present in Article 1(2) but missing in section 2(2) – Articles 8, 9, 35 & 36 of the Model law could have extra territorial effect, therefore to clarify that other provisions would apply on strict territorial basis word ‘only’ was introduced in Article 1(2) – Act 1996 does not contain exceptions like Articles 8, 9, 35 & 36 of the Model law – Hence word ‘only’ would have been superfluous in Section 2(2) – Contention that the by omitting word ‘only’ the Act has not accepted territorial principle rejected. (Para 65, 68, 69)

       (e) Arbitration and Conciliation Act, 1996 – Seat of arbitration – ‘Seat’ and ‘place’ often used interchangeably – Seat/place of arbitration is maintained as centre of gravity of the arbitral law – Omission of word ‘only’ does not affect applicability of section 2(2) to arbitrations having seat/place in India (Para 72, 74, 75, 76

       1988 (1) Lloyd’s Law Reports 116; 1993 (3) Lloyd’s Law Reports 48 – Relied upon

       (2002) 4 SCC 105; 2008 (1) Scale 214 – Overruled

       (f) Arbitration and Conciliation Act, 1996 – Section 2(2) – Contention that by omitting the word ‘only’ section 2(2) states the obvious that the Act applies to India and hence is superfluous – Provision should be read as limiting the applicability of Part I to arbitrations which take place in India – It is also not a repetition of section 1(2) – In view of the Act dealing with domestic, commercial and international commercial arbitrators, it was necessary to remove the uncertainty about possibility of the Act applying to arbitrations not taking place in India – Therefore, Section 2(2) merely reinforces the limits of operation of the Arbitration Act, 1996 to India. (Para 78, 79)

       (1975) 1 SCC 76; 1949 AC 530 – Relied upon

       (g) Interpretation of statutes – Plain meaning of the language of the provision to be adhered to – Reconstruction of the provision – Not permissible – Court cannot produce a new jacket, whilst ironing out the creases of the old one. (Para 80)

       (h) Arbitration and Conciliation Act, 1996 – Sections 2(2), 2(4) and 2(5) – Section 2(2) limiting application of Part I to arbitration taking place in India – “Every arbitration” in section 2(4) would not include arbitrations which take place outside India – Section 2(5) is subject to section 2(4) and must be read in the backdrop of section 2(2) – Section 2(4) and 2(5) not applicable to arbitrations covered by Part II, i.e. arbitrations taking place outside India – No conflict between sections 2(2), 2(4) and 2(5). (Para 81, 82, 84, 85)

       (i) Arbitration and Conciliation Act, 1996 – Section 2(7) – Domestic award, international award and foreign award – “Domestic award” means a domestically rendered award in a domestic arbitration; as also domestically rendered award in an international arbitration- Such awards amenable to sections 34 and 36 of the Act – Foreign award occurring in Part II – Distinction – Part I and Part II are exclusive of each other – Territoriality principle of the Act precludes applicability of Part I to foreign seated arbitration notwithstanding an agreement to make the Act the governing law. (Para 88, 89, 93)

       (j) Arbitration and Conciliation Act, 1996 – Section 2(7) – Section 2(7) reinforces territorial criterion – Two foreigners arbitrating in India, under a Foreign Arbitration Act – Seat/place being in India, provisions of Part I will apply – Such arbitration will produce a “domestically rendered international commercial award” and not a ‘foreign award’ – It would be a “foreign award” for enforcement in a country other than India. (Para 94)

       (k) Arbitration and Conciliation Act, 1996 – Section 2(1)(e) and Section 20 – Act whether ‘matter centric’ or ‘seat centric’ – “Subject matter of the arbitration” and “subject matter of the suit” – Distinction – “Subject matter” in section 2(1)(e) confined to Part I – Means the arbitral proceeding – To identify Courts having supervisory control over the subject matter, i.e. the arbitral proceeding – Section 2(1)(e) has to be construed keeping in view section 20 – In terms of section 20 in domestic arbitration parties can choose any place or venue of arbitration – ‘Seat’ and ‘venue’ of arbitration – Distinction – Even in international arbitration seat being in India, venue may be outside India – Selection of a place or seat, and not venue, for an arbitration will determine what the “curial law” or “lex fori” or “lex arbitri” will be – If parties by agreement providing for a seat / place of arbitration outside India, then Part I of the Act not be applicable – Part I applies only to arbitrations having their seat / place in India. (Para 95, 96, 99, 100, 114, 122)

       1988 (1) Lloyd’s Law Reports 116; [1970] 1 Lloyd’s Rep. 269: [1970] A.C.583; [1981] 2 Lloyd’s Rep. 446; [2008]EWHC 426 (TCC); [2009] EWHC 957 (Comm.); [2007] EWCA Civ 1282 (CA); 1993 (3) Lloyd’s Law Reports 48 – Referred

       (l) Arbitration and Conciliation Act, 1996 – Section 28 – Section 28 deals with the applicable conflict of law rules – Aimed at identifying applicable rules to “substance of dispute” – Provision makes a distinction between purely domestic arbitrations and international commercial arbitrations, with a seat in India. (Para 123)

       (m) Arbitration and Conciliation Act, 1996 – Part I and Part II – Not overlapping – Rather there is complete segregation – Part I deals with all stages of the arbitrations which take place in India whereas Part II does not deal with regulating conduct of arbitration or challenge to the award – Following the principle of territoriality provisions in Part I cannot be made applicable to Foreign Awards. (Para 125, 127, 129)

       (n) Arbitration and Conciliation Act, 1996 – Section 45 – Expression “notwithstanding anything contained in Part I, or in the Code of Civil Procedure, 1908” – Not implying applicability of Part I to international commercial arbitrations held outside India – Section 45 indicates that provisions of Part I would also be applicable to arbitrations taking place outside India. (Para 130, 134)

       (1992) 1 SCC 335 – Relied upon

       (o) Arbitration and Conciliation Act, 1996 – Section 48(1)(e) – Refuse to enforce foreign award – Provision not providing for challenge to foreign awards on merits – Grounds for refusal to enforce foreign award – Annulment by concurrent courts – Alternative of two courts – “Alternative two” will become available only if “alternative one” is not available – Expression ‘under the law’ refers only to the procedural law/curial law of the country in which the award was made and under the law of which the award was made – Has no reference to the substantive law of the contract between the parties. (Para 138, 146, 157)

       (2002) 4 SCC 105; 2008 (1) Scale 214 – Overruled

       (p) Arbitration and Conciliation Act, 1996 – Section 9 – It a sui generis provision – Relates to interim measures – Section 9 applicable only to arbitrations which take place in India – Applicability cannot be extended to arbitrations which take place outside India – Doing so would be to do violence to the policy of the territoriality. (Para 160, 163, 170)

       (q) Interpretation of statute – Sentence between two comas – No break-up – Cannot be broken up in two or three parts by way of interpretation. (Para 162)

       (r) Administration of Justice – Legal Remedy – Remedy being more onerous from the view point of one party – Does not mean that the party is left without a remedy – Even then, it is a matter to be addressed by the Legislature. (Para 167, 168)

       (1990) 3 SCC 682 – Relied upon

       2002 (1) Lloyd Law Reports 645; 1953 SCR 533; (1980) 1 All ER 529; 1951 (2) All ER 839 – Referred

       (s) Administration of Justice – Perceived hardship of parties – No ground to adopt a particular approach in interpreting a statute. (Para 171, 172)

       1951 (2) All ER 839 – Relied upon

       (2002) 4 SCC 105 – Distinguished

       (t) Arbitration Laws – Non-convention awards – Arbitration and Conciliation Act, 1996 not covering non-convention awards – It is the intention of the Legislature – Can be discovered by what is said and what is not said – Perceived lacuna in statute cannot be removed by Court. (Para 175)

       AIR 1990 SCC 1747 – Relied upon

       (u) Code of Civil Procedure, 1908 – Section 9 r/ Order VII Rule 1; Order XXXIX and Order LX; and Section 94 and 151 – Inter-parte suit for interim relief – Pendency of arbitration outside India – No ground for suit seeking injunction – Such suit will not be maintainable – Such suit would also be barred under Section 14(2) of the Specific Relief Act, 1963 – There is no provision under CPC or Arbitration Act, 1996 for grant of interim relief in terms of Section 9, in arbitrations which take place outside India. (Para 179, 183, 192, 193, 196)

       AIR 1952 SC 12; (1983) 4 SCC 625; (2012) 1 SCC 321 – Relied upon

       1979 AC 210; (1993) AC 334 192; 2007 (1) WLR 320; 2007 (1) All ER 1087 – Referred

       Facts of the case:

       During hearing of C.A. No. 7019 of 2005 the appellant referred to the three-Judges Bench decision in Bhatia International Vs. Bulk Trading S.A. & Anr., (2002) 4 SCC 105 which was followed in a recent decision of two Judges Bench in Venture Global Engineering Vs. Satyam Computer Services Ltd. & Anr. 2008 (1) Scale 214.

       One of the Judged, Hon’ble Mr. Justice Markandey Katju had reservation on the correctness of the said decisions in view of the interpretation of Clause (2) of Section 2 of the Arbitration and Conciliation Act, 1996. The other Judge had a different view. Hence the matter was directed to be placed those appeals before Hon’ble CJI for listing them before any other Bench.

       Pursuant to the aforesaid order, the appeal was placed for hearing before a three Judge Bench, which by its order dated 1st November, 2011 directed the matters to be placed before the Constitution Bench on 10th January, 2012.

       1. An agreement dated 22nd April, 1993 was executed between the appellant and the respondent, under which the respondent was to supply and install a computer based system for Shelter Modernization at BALCo’s Korba Shelter. The agreement contained an arbitration clause for resolution of disputes arising out of the contract.

       The governing law of the agreement was the prevailing law of India. However, the settlement procedure for adjudication of rights or obligations under the agreement was by way of arbitration in London and the English Arbitration Law was made applicable to such proceedings. Therefore, the lex fori for the arbitration is English Law but the substantive law will be Indian Law.

       Disputes arose between the parties with regard to the performance of the agreement. Claims and counter claims were made.

       The disputes were duly referred to arbitration which was held in England. The arbitral tribunal made two awards dated 10th November, 2002 and 12th November, 2002 in England. The appellant thereafter filed applications under Section 34 of the Arbitration Act, 1996 for setting aside the aforesaid two awards in the Court of the learned District Judge, Bilaspur who held that the applications filed by the appellant under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the foreign awards were not tenable and accordingly dismissed the same.

       The appellant filed two miscellaneous appeals in the High Court of Judicature at Chattisgarh, Bilaspur. A Division Bench of the High Court dismissed the appeal.

       2. The case of Bharati Shipyard Ltd. pertains to the applicability of Section 9 of the Arbitration Act, 1996. In this case, the appellant, an Indian Company, entered into two Shipbuilding Contracts with respondent No.1. The appellant was to construct vessels having Builders Hull No.379 which was to be completed and delivered by the appellant to the respondent No.1 within the time prescribed under the two Shipbuilding Contracts. The agreement contained an arbitration clause. The parties initially agreed to get their disputes settled through arbitral process under the Rules of Arbitration of the International Chamber of Commerce (ICC) at Paris, subsequently, mutually agreed on 29th November, 2010 to arbitration under the Rules of London Maritime Arbitrators Association (LMAA) in London. Prior to agreement dated 29th November, 2010 relating to arbitration under LMAA Rules, respondent No.1 had filed two requests for arbitration in relation to both the contracts under Article 4 of ICC Rules on 12th November, 2010 recognizing that the seat of arbitration is in Paris and the substantive law applicable is English Law.

       Subsequently, in view of the agreement dated 29th November, 2010, the first respondent submitted two requests for arbitration under LMAA Rules in London on 4th February, 2011. During the pendency of the aforesaid two requests, on 10th November, 2010, the first respondent filed two applications under Section 9 of the Arbitration Act, 1996 seeking orders of injunction against the encashment of refund bank guarantees issued under the contracts.

       The District Judge granted an ex parte ad interim injunction in both the applications restraining the appellant from encashing the bank guarantee on 16th November, 2010. The appellant appeared and filed its statement of objections. After hearing, the learned District Judge passed the judgments and orders on 14th January, 2011 allowing the applications filed by respondent No.1 under Section 9 of the Arbitration Act, 1996.

       Both the orders were challenged in the appeals before the High Court which allowed the appeal and set aside the orders passed by the District Judge.

       Finding of the Court:

       Section 2(2) is an express parliamentary declaration/ recognition that Part I of the Arbitration Act, 1996 applies to arbitration having their place/seat in India and does not apply to arbitrations seated in foreign territories.

       Result: Reference answered.