2014 Supreme(SC) 447

SUPREME COURT OF INDIA
Surinder Singh Nijjar, A.K.Sikri, JJ.
Reliance Industries Limited & Anr. – Appellant
VERSUS
Union of India – Respondent
CIVIL APPEAL NO. 5765 OF 2014 (Arising out of S.L.P. (C) No. 20041 of 2013)
Decided On : 28-05-2014

IMPORTANT POINTS
Law of arbitration and law of contract are different and distinct.
Arbitration agreement survives even if substantive contract is declared null and void.

Headnote:(a) Arbitration and Conciliation Act, 1996 – Part I – Applicability – Article 32.1 providing laws of India as proper law of contract – Article 32.2 declaring that rights, privileges and powers under the contract not to contravene laws of India – Article 33 provides for arbitration – Articles 32 and 33 do not overlap – In case parties fail to appoint arbitrator(s), Permanent Court of Arbitration at Hague has to be approached for appointment of an arbitrator – Further, arbitration proceedings are to be conducted in accordance with the UNCITRAL Rules, 1976 – Parties agreeing on juridical seat (or legal place of arbitration) being London, England – Proper law of the contract is Indian Law and proper law of the arbitration agreement is the law of England – Expression “laws of India” in Article 32.1 and 32.2 refers only to contractual obligations of the parties – Thus application of Act 1996 (Part I) is expressly excluded. (Para 37 to 41)

       (2002) 4 SCC 105 – Relied upon

       (b) Arbitration Law – Law of contract and law of arbitration agreement – Distinction has to be borne in mind – Juridical seat of arbitration agreed to be London – Also agreed that the arbitration agreement will be governed by the laws of England – No longer open to contend that the provisions of Part I of the Arbitration Act would also be applicable. (Para 42, 43)

       (2011) 6 SCC 161; (2008) 4 SCC 190; (2009) 3 ALR 162; Sumitomo Heavy Industries Ltd.; (2011) 9 SCC 735 – Relied upon

       2007 (1) All E.R. (Comm) 591; (1981) 1 SCC 523; (1992) 2 SCC 411; (1997) 5 SCC 536; (2007) 2 All ER (Comm) 701; (1920) 2 KB 287; (2012) 9 SCC 552; (2013) 3 SCC 1 – Referred

       Hardy Oil – Cited with approval

       (c) Arbitration Law – Seat of arbitration – Effect – Arbitration agreement providing seat of arbitration in England and arbitration agreement to be governed by English law – Award can be challenged under Arbitration Act, 1996 of England and Wales – Delhi High Court has no jurisdiction. (Para 56)

       [2008] 1 Lloyd’s Law Rep 239; (2012) WL 14764 – Relied upon

       (d) Arbitration laws – Public policy – Disputes contractual in nature – Performance of obligations not leading to any infringement of any law of India per se – Award not violating public policy of India – Arbitration and Conciliation Act, 1996 not applicable – High Court failed to distinguish the law applicable to the proper law of the contract and proper law of the arbitration agreement – Delhi High Court does not have jurisdiction. (Para 59, 60)

       (e) Arbitration law – Severability – Arbitral agreement and substantive contract – Are distinct – Arbitration agreement is independent of substantive contract –Arbitration agreement survives even without substantive contract – Arbitration and Conciliation Act, 1996 – Section 16(1) – a (Para 60, 61)

       (2012) 2 SCC 93; 2013 (7) SCALE 327; 2014 (1) Arb. LR 257 (SC); Civil Appeal No. 895 of 2014 – Relied upon

       (f) Arbitration laws – Agreement that arbitration agreement will be governed by laws of England – Scope – Not limited to passing of award. (Para 64, 65)

       (g) Arbitration laws – Substantive contract – To be governed by laws of India – Does it include Arbitration and Conciliation Act, 1996? – Article 32.1 specifically providing performance of contractual obligations under the PSC to be governed and interpreted under the laws of India – Arbitration agreement to be governed by laws of England – Wrong to contend that applicability of laws of England related only to the conduct of arbitration reference. (Para 66, 67)

       Naviera Amazonica; Sumitomo; (2009) 3 ALR 162 – Relied upon

       Facts of the case:

       Certain disputes and differences arose between the parties. Consequently, the appellant issued a notice of arbitration.

       Pursuant to the said notice the arbitral tribunal was duly constituted. Under Article 33.12, the venue of arbitration is in London. A substantive hearing was held between 21st May, 2012 to 29th May, 2012 in Singapore. The arbitral tribunal made the “Final Partial Consent Award” on 14th September, 2011.

       The respondents raised preliminary objections before the Tribunal.

       20. The respondents also contended that the Arbitral Tribunal cannot, or ought not, to go into or adjudicate the questions raised by the appellants (claimants) with respect to royalties; and leave the parties, if they choose, to seek the necessary relief before the specific forums created under the Oilfields (Regulation and Development) Act, 1948 and the Petroleum and Natural Gas Rules, 1956.

       Arbitral Tribunal rejected the objections of the respondents declaring that the Claimants’ claims in respect of royalties, cess, service tax and CAG audit are arbitrable.

       This was challenged before the High Court which was also dismissed.

       Finding of the Court:

       The Arbitration and Conciliation Act, 1996 (Part I) is not applicable. Delhi High Court does not have jurisdiction under section 34 of the 1996 Act.

       Result: Appeal allowed.