Supreme Court on Implied Exclusion of Part I of the Arbitration and Conciliation Act

On September 1, 2011, a two judge bench of the Supreme Court (Cyriac Joseph and Altamas Kabir) in Yograj Infrastructure Ltd v. Ssang Yong Engineering & Construction Co. Ltd., ruled that where the seat of arbitration was Singapore, rules governing the arbitration were of the Singapore International Arbitration Centre ("SIAC") and the substantive law of contract was Indian law, then Part I of the Arbitration and Conciliation Act, 1996 (the "1996 Act") was excluded by implication. 

Background

The Appellant was an Indian company while the Respondent was a company incorporated in Seoul, South Korea with its registered office at Seoul and its project office at New Delhi. In 2006, the National Highways Authority of India ("NHAI") awarded a contract to the Respondent, for a project in the State of Madhya Pradesh.  The Respondent entered into a Sub-Contract with the Appellant Company for carrying out the work in question.

Arbitration Clause

Clauses 27 and 28 of the Agreement provided for arbitration and the governing law agreed to was the the 1996 Act. 

The arbitration clause contained in the Agreement in Clause 27 read as follows:

"27.1 All disputes, differences arising out of or in connection with the Agreement shall be referred to arbitration. The arbitration proceedings shall be conducted in English in Singapore in accordance with the Singapore International Arbitration Centre (SIAC) Rules as in force at the time of signing of this Agreement. The arbitration shall be final and binding.

27.2 The arbitration shall take place in Singapore and be conducted in English language.

27.3 None of the Party shall be entitled to suspend the performance of the Agreement merely by reason of a dispute and/or a dispute referred to arbitration."

Clause 28 of the Agreement described the governing law and provided:

"This agreement shall be subject to the laws of India. During the period of arbitration, the performance of this agreement shall be carried on without interruption and in accordance with its terms and provisions."

Issues

The issues involved in the instant case were:

(i) whether Indian Courts would have jurisdiction to entertain an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, against an interim order passed by the Arbitral Tribunal with its seat in Singapore; 

(ii) Whether the "law of arbitration" would be the International Arbitration Act, 2002, of Singapore; and 

(iii) whether the "Curial law" would be the laws of Singapore.

Dispute

In 2009, Respondent issued a notice of termination of the Agreement, inter alia, on the ground of delay in performing the work under the Agreement. Settlement talks having failed, the Respondent/claimant, invoked Clause 27 of the Agreement for reference of the disputes to arbitration in accordance with the SIAC Rules. Both the parties filed applications before the Sole Arbitrator seeking interim relief under Rule 24 of the SIAC Rules in June, 2010. The Arbitrator passed an interim order on 29th June, 2010 in favour of Respondent.

Before the lower courts

The appeal filed by the Appellant before the District Court, Narasinghpur, under Section 37(2)(b) of the 1996 Act, against the order of the Sole Arbitrator, was dismissed on the ground of maintainability and lack of jurisdiction, since the seat of the arbitration proceedings was in Singapore and the said proceedings were governed by the laws of Singapore. 

The Civil Revision filed against the said order was dismissed by the Madhya Pradesh High Court in August, 2010. The High Court observed that under Clause 27.1 of the Agreement, the parties had agreed to resolve their dispute under the provisions of SIAC Rules which expressly or, in any case, impliedly also adopted Rule 32 of the said Rules which categorically indicates that the law of arbitration under the said Rules would be the International Arbitration Act, 2002, of Singapore. Against this decision of the High Court, the Appellant filed this Special Leave Petition. 

Before the Supreme Court

Contentions of Appellant

Appellant contended that Indian law is the applicable law of arbitration, in terms of the agreement arrived at between the parties. This explicit agreement is evident from the wording of clause 28 of the Agreement, which provided that the Agreement would be subject to the laws of India and that during the period of arbitration, the performance of the Agreement would be carried out without interruption and in accordance with its terms and provisions. In other words, all interim measures sought to be enforced would necessarily have to be in accordance with Sections 9 and 37(2)(b) of the Act.

As per clause 27.1, SIAC Rules would apply only to the arbitration proceedings, but not to appeals from such proceedings. It was submitted that the right to appeal from an interim order under Section 37(2)(b) is a substantive right provided under the Act and was not governed by the SIAC Rules.

Reliance was also placed on Rule 1.1 of the SIAC Rules which provides:

"Where parties have agreed to refer their disputes to the SIAC for arbitration, the parties shall be deemed to have agreed that the arbitration shall be conducted and administered in accordance with these Rules. If any of these Rules is in conflict with a mandatory provision of the applicable law of the arbitration from which the parties cannot derogate, that provision shall prevail."

Rule 32 (of the 2007 Rules) provides: 

"Where the seat of arbitration is Singapore, the law of the arbitration under these Rules shall be the International Arbitration Act (Chapter 143A, 2002 Ed, Statutes of the Republic of Singapore ) or its modification or re-enactment thereof." 

However, Section 37(2)(b) of the 1996 Act being a substantive and non-derogable provision, providing a right of appeal to parties from a denial of an interim measure, such a provision protects the interest of parties during the continuance of arbitration and as a consequence, Rule 32 of the SIAC Rules which does not provide for an appeal, is in direct conflict with a mandatory non-derogable provision contained in Section 37(2)(b) of the 1996 Act.

It was then submitted that Part I of the 1996 Act was applicable in this case, since: 

(i) it had not been excluded by Clause 27 of the Agreement (the Bhatia International and Venture Global decisions were relied on, as well as Citation Infowares Ltd. v. Equinox Corporation, wherein it was clearly held that where the operation of Part I of the 1996 Act is not expressly excluded by the arbitration clause, the said Act would apply); (ii) Clause 28 of the Agreement expressly provided that the Agreement would be subject to the laws of India and that during the period of arbitration the parties to the Agreement would carry on in accordance with the terms and conditions contained therein. 

The International Arbitration Act of Singapore would have no application to this case, though the conduct of the proceedings of arbitration would be governed by the SIAC Rules.

It was thus argued that the High Court had made an error in its decision by not considering Clause 28 of the Agreement while arriving at such a conclusion. Moreover, the very fact that the Respondents had approached the District Court, Narsinghpur, in India and had filed an application under Section 9 of the 1996 Act,  and even mentioned that the contract was within the jurisdiction of the court, indicated that the Respondent also accepted the applicability of the 1996 Act. 

The Appellant further relied on section 42 in Part I of the 1996 Act, which states: 

"Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court."

The concepts of 'proper law' of an arbitration agreement and 'curial law' were explained and distinguished. The proper law is the law which would be applicable in deciding the disputes referred to arbitration, it governs most aspects of the main contract, and the curial law governs the procedural aspect of the conduct of the arbitration proceedings. 

Thus, the appellant argued, the proper law of the arbitration would be the 1996 Act, the curial law would be the SIAC Rules. This difference in the two concepts had been considered by the Apex Court in Sumitomo Heavy Industries Ltd. v. ONGC and NTPC v. Singer, in which the question for decision was what would be the law governing the arbitration when the proper law of the contract and the curial law were agreed upon between the parties. 

Appellant contended that absent any express choice, the proper law of the contract would be the proper law of the Arbitration Agreement. In the instant case, admittedly the proper law of contract was the law of India and since the parties had not expressly made any choice regarding the law governing the Arbitration Agreement, the proper law of contract, namely, the 1996 Act, would be the proper law of the Arbitration Agreement.

The right to appeal, a substantive right under the 1996 Act would be governed by the said Act and the present appeal, was therefore, liable to be allowed, and the order of the High Court, impugned in the appeal, was liable to be set aside.

Contentions of Respondent

Respondent submitted that the parties had agreed that the seat of arbitration would be Singapore and that the arbitration proceedings would be continued in accordance with SIAC Rules, as per Clause 27.1 of the Agreement. It was also agreed that the proper law of the contract would be Indian law and the proper law of the arbitration would be Singapore law.

Respondent contended that an application under Section 9 of the 1996 Act was filed before the District Court prior to the date of invocation of the arbitration proceedings and before the curial law, Singapore law, became operative.The District Judge  directed the applicant to submit its case before the Arbitrator in Singapore. The parties had expressly chosen the proper law of the contract to be Indian Law, the proper law of arbitration to be the Singapore International Arbitration Act, 2002 and the curial law to be Singapore law, since the seat of arbitration was in Singapore. Respondent relied on Sumitomo Heavy Industries Ltd. v. ONGC, where it was held that the curial law, besides determining the procedural powers and duties of the Arbitrators, would also determine what judicial remedies are available to the parties, who wished to apply for security for costs or for discovery or who wished to challenge the Award once it had been rendered and before it was enforced.

Next, it was submitted that choice of the seat of arbitration empowered the courts within the seat of arbitration to have supervisory jurisdiction over such arbitration.  

The decision in NTPC v. Singer related to the applicability of the Indian Arbitration Act, 1940, and the Foreign Awards (Recognition and Enforcement) Act, 1961, to a foreign award sought to be set aside in India under the provisions of the 1940 Act. The said decisions have no relevance to the question raised in the present case which raises the question as to whether the Indian Courts would have jurisdiction to entertain an appeal under Section 37 of the 1996 Act against an interim order of the Arbitral Tribunal, despite the parties having expressly agreed that the seat of arbitration would be in Singapore and the Curial law of the arbitration proceedings would be the laws of Singapore. In the NTPC judgment, the Court had observed that Courts would give effect to the choice of a procedural law other than the proper law of contract only where the parties had agreed that the matters of procedure should be governed by a different system of law. In the above-mentioned case, the Court was dealing with a challenge to a domestic award and not a foreign award. Section 9(b) of the Foreign Awards (Recognition and Enforcement) Act, 1961, provides that the said Act would not apply to an award, although, made outside India, but which is governed by the laws of India. Accordingly, all such awards were treated as domestic awards by the 1961 Act and any challenge to the said award, could, therefore, be brought only under the provisions of the 1940 Act. The law of arbitration in the NTPC case was Indian law as opposed to the present case, where the parties had agreed that the law of arbitration would be the International Arbitration Act, 2002, of Singapore.

By virtue of Clause 27 of the Agreement, and by accepting the SIAC Rules, the parties had agreed that Part I of the 1996 Act would not apply to the arbitration proceedings taking place in Singapore. This was reiterated in the Terms of Reference that the arbitration proceedings would be governed by the laws of Singapore. Even in Bhatia International, relied upon by Appellant, the Court had held that parties by agreement, express or implied, could exclude all or any of the provisions of Part I of the 1996 Act. Consequently, in Bhatia International the Court had held that exclusion of Part I of the 1996 Act could be by virtue of the Rules chosen by the parties to govern the arbitration proceedings.

With respect to Section 42 of the 1996 Act, the High Court had held that by express agreement parties had ousted the jurisdiction of the Indian Courts, while the arbitration proceedings were subsisting. Accordingly, it was only the laws of arbitration as governed by the SIAC Rules which would govern the arbitration proceedings along with the procedural law, which is the law of Singapore.

Decision

The decision turned on Clause 27.1 of the Agreement between the parties. As evident from Clause 27.1, the procedural law with regard to the arbitration proceedings, was unambiguously the SIAC Rules. Clause 27.2 made it clear that the seat of arbitration would be Singapore.

To decide on the law on the basis of which the arbitral proceedings were to be decided, the Court looked to Clause 28 of the Agreement. Clause 28 indicated that the governing law of the agreement would be the law of India, i.e., the 1996 Act. While the proper law governed the agreement itself, in the absence of any other stipulation in the arbitration clause as to which law would apply in respect of the arbitral proceedings, it is the law governing the contract which would also be the law applicable to the Arbitral Tribunal itself. Clause 27.1 made it clear, according to the Court that the curial law, regulating the procedure to be adopted in conducting the arbitration, would be the SIAC Rules. 

The question to be decided was whether in such a case the provisions of Section 2(2) of the 1996 Act, indicating that Part I of the Act would apply where the place of arbitration is in India, would be a bar to the invocation of the provisions of Sections 34 and 37 of the Act, as far as the instant arbitral proceedings, being conducted in Singapore, were concerned.

The Court distinguished Bhatia International, wherein while considering the applicability of Part I of the 1996 Act to arbitral proceedings where the seat of arbitration was in India, the Court was of the view that Part I of the Act did not automatically exclude all foreign arbitral proceedings or awards, unless the parties specifically agreed to exclude the same. In the present case, parties had categorically agreed that the arbitration proceedings, if any, would be governed by the SIAC Rules as the Curial law, which included Rule 32, requiring applicability of the Singapore International Arbitration Act, 2002.

Regarding Rule 1.1 of the SIAC Rules, the Court ruled that Section 2(2) of the 1996 Act indicates that Part I would apply only in cases where the seat of arbitration is in India. Although the Court in Bhatia International, while considering the said provision, held that in certain situations the provision of Part I of the aforesaid Act would apply even when the seat of arbitration was not in India, in the instant case, once the parties had specifically agreed that the arbitration proceedings would be conducted in accordance with the SIAC Rules, which includes Rule 32, the decision in Bhatia International and subsequent decisions relying on it, would no longer apply.

With regard to Section 42 of the 1996 Act, the Court held that the same was applicable at the pre-arbitral stage, when the Arbitrator had not also been appointed. Once the Arbitrator was appointed and the arbitral proceedings were commenced, the SIAC Rules became applicable excluding the applicability of Section 42 as well as Part I of the 1996 Act, including the right of appeal under Section 37 thereof.

Thus the appeal under Section 37 was not maintainable and the instant appeal was dismissed.

Arbitration Act is a self contained code; No LPA against non-appealable orders - Supreme Court

Section 50 of the Arbitration and Conciliation Act, 1996 states:

"(1) An appeal shall lie from the order refusing to -

(a) refer the parties to arbitration under section 45;

(b) enforce a foreign award under section 48,

to the court authorised by law to hear appeals from such order.

(2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court."

In Fuerst Day Lawson Ltd. vs Jindal Exports Ltd., (decided on July 8, 2011), the Supreme Court was faced with the question of whether this provision precludes Letters Patent Appeals.

Before the Court could move on to answering this question, it had to deal with an application placed before it by the petitioners for the transfer of this case to a larger bench. The petitioners referred to  Orma Impex Pvt. Ltd. v. Nissai ASB PTE Ltd., (1999) 2 SCC 541, in which a two-judge bech of the Supreme Court had referred the same question to a three judge bench citing an apparent conflict in precedents. However, before the three judge bech could answer the question the matter was compromised. The Court held that Orma Impex was not a binding precedent as the matter was compromised before a decision could be reached. As to the conflict referred to in Orma Impex, the Court drew a distinction between the statutory schemes of Part I and Part II of the Act. While the opening language of Section 37 and Section 50 of the 1996 Act is similar to that of Section 39 of the 1940 Act, only Section 37 (and not Section 50) is similar in its statutory scheme and object and purpose to Section 39 of the 1940 Act. Hence, judgments rendered on whether Section 39 of the 1940 Act excluded Letters Patent Appeals was not relevant in interpreting Section 50.

Before going on to determine whether the current statutory framework excludes Letters Patent Appeals, the Court lays down several 'broad principles' gathered from precedents:

"1. Normally, once an appeal reaches the High Court it has to be determined according to the rules of practice and procedure of the High Court and in accordance with the provisions of the charter under which the High Court is constituted and which confers on it power in respect to the method and manner of exercising that power.


2. When a statute merely directs that an appeal shall lie to a court already established then that appeal must be regulated by the practice and procedure of that court.


3. The High Court derives its intra-court appeal jurisdiction under the charter by which it was established and its powers under the Letters Patent were recognized and saved by section 108 of the Government of India Act, 1915, section 223 of the Government of India Act, 1935 and finally, by Article 225 of the Constitution of India. The High Court, therefore, cannot be divested of its Letters Patent jurisdiction unless provided for expressly or by necessary intendment by some special statute.


4. If the pronouncement of the single judge qualifies as a "judgment", in the absence of any bar created by a statute either expressly or by necessary implication, it would be subject to appeal under the relevant clause of the Letters Patent of the High Court.


5. Since section 104(1) CPC specifically saves the letters patent appeal it could only be excluded by an express mention in section 104(2). In the absence of any express mention in section 104(2), the maintainability of a letters patent appeal is saved by virtue of section 104(1).


6. Limitation of a right of appeal in absence of any provision in a statute cannot be readily inferred. The appellate jurisdiction of a superior court cannot be taken as excluded simply because a subordinate court exercises its special jurisdiction.


7. The exception to the aforementioned rule is where the special Act sets out a self-contained code and in that event the applicability of the general law procedure would be impliedly excluded. The express provision need not refer to or use the word "letters patent" but if on a reading of the provision it is clear that all further appeals are barred then even a letters patent appeal would be barred."

Based on these 'broad principles' the Court goes on to hold that a Letters Patent Appeal would stand excluded under the present statutory scheme of Section 50.

For this proposition, the Court advances two independent reasons -

1. Under Section 6(2) the Foreign Awards (Recognition and Enforcement) Act, 1961, all appeals including LPAs were barred except where an enforcing court issued a decree which was in excess of the award which was being enforced. In the present statutory scheme, no decree in terms of the award is necessary for a foreign award to enforced. By doing away with this procedural requirement, the statute has also done away with the possibility that a decree in excess of the award can be issued and hence has removed the only limited ground on which a LPA could have been entertained under the 1961 Act. "It would be futile, therefore, to contend that though the present Act even removes the limited basis on which the appeal was earlier maintainable, yet a Letters Patent Appeal would lie notwithstanding the limitations imposed by section 50 of the Act. The scheme of sections 49 and 50 of the 1996 Act is devised specially to exclude even the limited ground on which an appeal was earlier provided for under section 6 of the 1961 Act."

2. The Arbitration and Conciliation Act is a self contained code. "It is, thus, to be seen that Arbitration Act 1940, from its inception and right through 2004 (in P.S. Sathappan) was held to be a self-contained code. Now, if Arbitration Act, 1940 was held to be a self-contained code, on matters pertaining to arbitration the Arbitration and Conciliation Act, 1996, which consolidates, amends and designs the law relating to arbitration to bring it, as much as possible, in harmony with the UNCITRAL Model must be held only to be more so. Once it is held that the Arbitration Act is a self- contained code and exhaustive, then it must also be held, using the lucid expression of Tulzapurkar, J., that it carries with it a negative import that only such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to be done. In other words, a Letters Patent Appeal would be excluded by application of one of the general principles that where the special Act sets out a self-contained code the applicability of the general law procedure would be impliedly excluded."