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CASE NO.: Appeal (civil)  2562 of 2006

PETITIONER: M/s. Centrotrade Minerals & Metal. Inc.

RESPONDENT: Hindustan Copper Ltd.

DATE OF JUDGMENT: 09/05/2006

BENCH: S.B. Sinha

JUDGMENT: J U D G M E N T CIVIL APPEAL NO. \005\0052562\005\005.. OF 2006 [Arising out of S.L.P. (C) No. 18611 of 2004] W I T H  CIVIL APPEAL NO. 2564\005\005\005 OF 2006 [Arising out of S.L.P.(C) No. 21340 of 2004]

S.B. SINHA, J :

       Leave granted.

       Interpretation of an agreement containing a two tier arbitration vis-‘- vis the applicability of Part I or Part II of the Arbitration and Conciliation  Act, 1996 (for short, "the 1996 Act") is in question in these appeals which  arise out of a judgment and order dated 28.07.2004 passed by a Division  Bench of the Calcutta High Court in A.P.O.T. No. 182 of 2004.

FACTS :         M/s. Centrotrade Minerals and Metal Inc. (for short, "Centrotrade"),  Appellant in SLP (C) No. 18611 of 2004 and the Hindustan Copper Limited  (for short "HCL"), Appellant in SLP (C) No. 21340 of 2004 entered into a  contract for sale of 15,500 DMT of Copper Concentrate to be delivered at  Kandla Port in the State of Gujarat in two separate consignments.  

       The said goods were ultimately required to be used at the Khetri Plant  of HCL situated in the State of Rajasthan.  The seller in terms of the contract  was required to submit a quality certificate from an internationally reputed  assayer, mutually acceptable to the parties.  After the consignments were  delivered, the payments therefor had been made.  However, a dispute arose  between the parties as regard the dry weight of concentrate copper.   

Clause 14 of the contract contained an arbitration agreement which   reads as under:

"All disputes or differences whatsoever arising between  the parties out of, or relating to, the construction,  meaning and operation or effect of the contract or the  breach thereof shall be settled by arbitration in India  through the arbitration panel of the Indian Council of  Arbitration in accordance with the Rules of Arbitration of  the Indian Council of Arbitration.  If either party is in  disagreement with the arbitration result in India, either  party will have the right to appeal to a second arbitration  in London, UK in accordance with the rules of  conciliation and arbitration of the International Chamber  of Commerce in effect on the date hereof and the results

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of this second arbitration will be binding on both the  parties.  Judgment upon the award may be entered in any  court in jurisdiction."

       Centrotrade invoked the arbitration clause.  The Arbitrator appointed  by the Indian Council of Arbitration made a NIL award.  Centrotrade  thereupon invoked the second part of the said arbitration agreement on or  about 22nd February, 2000.  An award was made pursuant thereto.

SUIT BY HCL :         HCL, during pendency of the proceedings before the arbitrator, filed a  suit in the court at Khetri in the State of Rajasthan questioning initiation of  the second arbitration proceeding before International Chamber of  Commerce inter alia contending that the provision for second arbitration was  void and a nullity.  No interim order was passed therein despite having been  prayed for, whereupon an appeal was preferred by HCL before the District  Judge, which was also dismissed.  In a revision filed by HCL, the High  Court granted an injunction.  In the meanwhile the sole arbitrator had  commenced arbitration proceedings.  Centrotrade filed a special leave  application before this Court questioning the said order of injunction passed  by the Rajasthan High Court and by an order dated 8th February, 2001, the  said order of interim injunction was vacated.

ARBITRATION PROCEEDING :         Mr. Jeremy Cooke, Arbitrator held his sittings in London.  HCL, in a  series of letters to the International Court of Arbitration and to the  Arbitrator, maintained that the arbitration agreement was void being  opposed to public policy.  Despite the same, they, through their attorney,  consulted about the procedural aspects of the arbitration and had asked for  their submissions in relation to the procedure, progress and substance of the  dispute.  HCL also received copies of all correspondence passed between  Centrotrade and the Arbitrator and of all submissions made.  They had been  given every opportunity to take any point which they wished to take in their  defence.  Centrotrade served their submissions and supporting evidence by  the orders made by the Arbitrator on 20th December, 2000, 19th January,  2001 and 3rd May, 2001.  When no defence submission or supporting  evidence was produced by HCL within the time prescribed, a fax was sent to  them by the learned Arbitrator on 30th July, 2001 giving it one last  opportunity to inform him by return of any intention on their part to put in a  defence and to seek an extension of time for doing so.  A further fax was  sent on 9th August, 2001 whereby the Arbitrator informed the parties that he  was proceeding with the award.  On 11th August, 2001, the Arbitrator  received a fax from Fox & Mandal (representing HCL) requesting for  extension of time for one month to put in a defence, pursuant whereto on  16th August, it was directed that any submission in support of an application  for extension of time for a defence and any submissions on the substantive  merits of the dispute together with any evidence relied in relation to the  application and any submissions made thereupon should be received by him  by 31st August, 2001 in absence whereof he would not give any  consideration thereto.  On 27th August, 2001, Fox & Mandal sought for a  further three weeks’ extension of time for making their submissions and  serving supporting evidence, pursuant whereto a time for filing those  submissions of evidence was extended until 12th September, 2001.   Submissions containing about seventy five pages were received by the  Arbitrator on 13th September, 2001 without any supporting evidence or any  justification for not complying with the earlier orders passed by him.  The  Arbitrator, however, considered the submissions made by HCL in making  the award.     AWARD :         An award was passed by the said Arbitrator on 29th September, 2001  holding :

(i)     the arbitration clause contained in clause 14 of the agreement is  neither unlawful nor invalid.

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(ii)    the Arbitrator had jurisdiction to decide his own jurisdiction in terms  of Article 8.3 of the ICC Rules as also Section 16 of the 1996 Act.   

(iii)   the claim of Centrotrade based on the report of Inspectorate Griffith  was just.  The arbitration award dated 15th June, 1999 was obviously wrong.   There is no dispute about the actual figure of loss claimed by Centrotrade.   There is no dispute as to the demurrage owing which, in accordance with  Clause 9.2 of the contract, is to be calculated on the basis of a discharging  rate of 1600 MT per WWD of 24 consecutive hours.

(iv)    Centrotrade is entitled to interest as well as costs.

       It was directed:

"(1) HCL do pay Centrotrade the sum of $152,112.33,  inclusive of interest to the date of the Award in respect of  the purchase price for the first shipment.

(2) HCL do pay Centrotrade the sum of $15,815.59,  inclusive of interest to the date of this Award in respect  of demurrage due on the first shipment.

(3) HCL do pay Centrotrade the sum of $284,653.53,  inclusive of interest to the date of this Award in respect  of the purchase price on the second shipment.

(4) HCL do pay Centrotrade their legal costs in this  arbitration in the sum of $82,733 and in addition the costs  of the International Court of Arbitration, the Arbitrator’s  fees and expenses totaling $29,000.

(5) HCL do pay Centrotrade compound interest on the  above sums from the date of this Award at 6% p.a. with  quarterly rests until the date of actual payment."

PROCEEDINGS BEFORE THE COURTS :         HCL filed an application purported to be under Section 48 of the 1996  Act in the Court of District Judge Alipore, Calcutta.  HCL also filed a suit  before the Civil Judge, Senior Division, Alipore which was marked as T.S.  No. 78 of 2001 praying for a declaration that the ICC award is void and a  nullity, as also for permanent injunction and damages.   

Enforcement of Award :         Centrotrade, in the meanwhile, filed an application for enforcement of  the said award dated 29th September, 2001 in the Court of the District Judge,  Alipore which was numbered as Execution Case No. 1 of 2002.  Upon an  application made in terms of Clause 13 of the Letters Patents of the Calcutta  High Court by Centrotrade, the said execution case was transferred to the  Calcutta High Court.

       A learned Single Judge of the said court by a judgment and order  dated 10th March, 2004 allowed the said execution petition.  Aggrieved by  and dissatisfied therewith, HCL preferred an appeal which was allowed by  reason of the impugned order dated 20th May, 2004.  Both the parties are  before us questioning the correctness of the said judgment.

HIGH COURT JUDGMENT :         In its judgment, the High Court held:

(i)     Although successive arbitration is not impermissible in India, but two

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successive awards are mutually destructive.   

(ii)    In his award, Mr. Cooke did not make any statement that he was  overruling or setting aside or in any manner altering the Indian award.   

(iii)   Although the second award is binding on the parties but is not  enforceable having regard to the first award.   

(iv)    The second award is not a foreign award within the meaning of  Section 44 of the 1996 Act and, thus, Section 34 thereof would apply thereto  in the facts and circumstances of the case.   

(v)     Neither Part II of the Act nor Section 51 thereof states anywhere  either expressly or by necessary implication, that the definition of ’Foreign  Award’ contained in Section 44 would apply notwithstanding the proper law  of the contract being Indian Law.   

SUBMISSIONS :         Mr. S. Sarkar, learned senior counsel appearing on behalf of  Centrotrade  submitted that:

(i)     In a two-tier arbitration, the second arbitration proceedings having  taken place in London, the award of Mr. Cooke was a foreign award within  the meaning of Section 44 of the Act.   

(ii)    The learned Single Judge was satisfied that the HCL was not unable to  present his case in the arbitration proceedings within the meaning of Section  48(1)(b) of the Act which finding having not been reversed by the Division  Bench, no case has been made out for setting aside the award.  Even  otherwise refusal of an adjournment by an Arbitrator is not a ground for  challenging an arbitral award.

       Mr. Debabrata Ray Choudhury, learned counsel appearing on behalf  of the HCL, on the other hand, submitted that:

(i)     The definition of an award as contained in Section 2(2) of the 1996  Act must be read with the other provisions thereof, viz., Sections 2(5), 2(6)  and 2(7) as also Section 42 thereof  in view of the fact that the Indian law  was applicable in relation to the contract in question.   

(ii)    Indian law in relation to enforcement of the terms and conditions of  the contract being applicable, both the awards are governed by the Indian  law.

(iii)   The second part of the arbitration agreement contained in Clause 14 of  the agreement is void and of no effect being opposed to public policy.  Having regard to the fact that the first award was made in terms of the Indian  law, reference to the second arbitrator was impermissible inasmuch as the  1996 Act envisages only one award.    (iv) The object of the Act being to provide an integral framework and the  parties having chosen Indian law, even assuming that Part II of the Act  applies, Section 44 clearly makes an exception therefor in view of the  decision of this Court in  Bhatia International Vs. Bulk Trading S.A. and  Another [(2002) 4 SCC 105].

(v)    In any event, the Arbitrator did not give adequate opportunities of  hearing and as the procedures prescribed under the ICC Rules were not  followed, the award is liable to be set aside.  The Arbitrator, having  proceeded to prepare an award without the pleadings of the parties before  him and considering only the first part of the written statement without  waiting for the second part, misconducted himself at the proceeding.  Had an  opportunity been given, HCL could have cross-examined the expert on  whose report, the award has been made.

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(vi)    Neither any issue was raised, nor any date was fixed for hearing and,  as the parties were not given an opportunity to examine the witnesses, the  award is liable to be set aside in terms of Section 48(1)(b) of the 1996 Act.

(vii)   The judgment of the High Court to the extent that the arbitration  clause has been held to be valid is erroneous.  

VALIDITY OF THE AGREEMENT :

       So far as the question of validity of the arbitration agreement between  the parties is concerned, we may at the outset notice that the said question  was specifically raised by HCL both before the learned Single Judge and the  Division Bench of the High Court.

       Both the learned Single Judge and the Division Bench held the said  arbitration agreement to be valid.  The Arbitrator as also the High Court in  support of their findings on the said question relied upon the decisions of the  Calcutta High Court in Hiralal Agarwalla & Co. Vs. Jokin Nahopier & Co.  Ltd. [AIR 1927 Cal 647], the Bombay High Court in Fazalally Jivaji Raja  Vs. Khimji Poonji and Co. [AIR 1934 Bom 476] and the Madras High Court  in M.A. Sons Vs. Madras Oil & Seeds Exchange Ltd. & Anr. [AIR 1965  Mad. 392].

We, at the outset, would notice the decisions and the authorities which  had been relied upon by the learned arbitrator as also by the High Court in  support of the proposition that a two tier arbitration constitutes a valid  agreement.   

The question primarily before us is as to whether the validity of such  arbitration agreement can be upheld having regard to the provisions of the  1996 Act.  

       In Hanskumar Kishan Chand Vs. The Union of India [AIR 1958 SC  947], interpretation of Section 19 of the Defence of India Act, 1939 fell for  consideration.  Section 19(1) provides for payment of compensation if any  action is taken of the nature described in sub-section (2) of Section 299 of  the Government of India Act, 1935.  Section 19(1)(a) provided for the  amount of compensation being fixed by the agreement whereas Section  19(1)(b) provided for reference to arbitrator in the event such an agreement  cannot be reached whose qualification was laid down under Sub-section (3)  of Section 220 of the said Act for appointment as a Judge of a High Court.   Section 19(1)(b) reads as under:          "Where no such agreement can be reached, the  Central Government shall appoint as arbitrator a  person qualified under sub-section (3) of Section 220  of the abovementioned Act for appointment as a  Judge of a High Court."

       Section 19(1)(c) provided for appointment by the Central Government  of a person having expert knowledge as to the nature of the property  acquired and for the nomination of an assessor by the person to be  compensated for the purpose of assisting the arbitrator.  Section 19(1)(e)   contemplated that the arbitrator in making his award shall have regard to the  provisions of sub-section (1) of Section 23 of the Land Acquisition Act,  1894 so far as the same can be made applicable.  In terms of Section  19(1)(f), an appeal shall lie to the High Court against an award of the  arbitrator except in cases where the amount thereof does not exceed an  amount prescribed in this behalf by rule made by the Central Government.   Section 19(1)(g) provided that save as provided in the said section and in  any rules made thereunder nothing in any law for the time being in force  shall apply to arbitrations under that section.  Construing the aforementioned  provisions, this Court held:

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"14. The principles being thus well-settled, we have to  see in the present case whether an appeal to the High  Court under Section 19(l)(f) of the Act comes before it as  a Court or as arbitrator. Under Section 19(l)(b), the  reference is admittedly to an arbitrator. He need not even  be a Judge of a Court. It is sufficient that he is qualified  to be appointed a Judge of the High Court. And under the  law, no appeal would have laid to the High Court against  the decision of such an arbitrator. Thus, the provision for  appeal to the High Court under section 19(1)(f) can only  be construed as a reference to it as an authority  designated and not as a Court. The fact that, in the  present case, the reference was to a District Judge would  not affect the position. Then again, the decision of the  arbitrator appointed under Section l9(l)(b) is expressly  referred to in Section 19(l)(f) as an award. Now, an  appeal is essentially a continuation of the original  proceedings, and if the proceedings under Section  19(l)(b) are arbitration proceedings, it is difficult to see  how their character can suffer a change, when they are  brought up before an Appellate Tribunal. The decisions  in The Special Officer, Salsette Building Sites v.  Dossabhai Bezonji. The Special Officer Salsette Building  Sites v. Dassabhai Basanji Motiwala, Manavikraman  Tirumalpad v. The Collector of the Nilgris and Secretary  of State for India in Council v. Hindusthan Co-operative  Insurance Society Limited proceed all on the view that an  appeal against an award continues to be part of, and a  further stage of the original arbitration proceedings. In  our view, a proceeding which is at the inception an  arbitration proceeding must retain its character as  arbitration, even when it is taken up in appeal, where that  is provided by the statute."                                                          (Emphasis supplied)

       In Hiralal Agarwalla (supra), Ghose, J. speaking for a  Division Bench  of the Calcutta High Court dealing with almost an identical matter, was of  the opinion that a committee of appeal can hold a second round of  arbitration, whether described as a fresh set of arbitration or not, as the  substance of the matter has got to be looked at, and giving to the sections of  the Indian Arbitration Act, the very best consideration will the learned Judge  find in it which would prevent an award by a committee being the final  award contemplated by the parties in certain eventualities  being filed in the  High Court.  It was observed that, ’in other words, the contract contains as it  were two submissions or a submission within a submission’.   Ghose, J.,  however, did not go into the question as to whether the first award could be  filed in court.   Buckland, J., concurring with the said judgment stated the  law thus :

"The procedure whereby the dispute comes before  the committee is called an appeal.  What it is called is of  no consequence; the fact remains that the committee is a  body other than a Court of justice to whom the parties  have agreed to refer their dispute.  Such a proceeding is  known to the law as an arbitration and those in whom the  arbitration is lodged are known as arbitrators or an  umpire\005"  

       In Fazalally Jivaji Raja (supra), the Bombay High Court followed  Hiralal Agarwalla (supra).  It also referred to a judgment of another learned  Single Judge of the said High Court wherein it was observed :

"\005It is as much an award in respect of which the parties  can seek relief under the Arbitration Act as an ordinary

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award made by arbitrators as contemplated by that Act  from which there is no appeal to any Board as in the  present case.  This point is covered by the decision of the  Court of appeal in (1893) 1 Q.B. 405, which has been  referred to in the judgment of the lower Court.  It is a  decision under the English statute of 1889, corresponding  to the Arbitration Act, and the point that has been argued  by Mr. Desai on behalf of the appellants here was raised  in that case and disallowed."     

       Yet again in M.A. Sons (supra), a Division Bench of the Madras High  Court following Hiralal Agarwalla (supra), observed :                  "\005An award made pursuant to a proper arbitration  agreement is final, subject, of course, to the  consequences of any such term of the contract.  Here, the  agreement provided that the parties would abide by any  modification or alteration in the by-laws as governing the  contract when it subsisted or was in issue between the  parties.  We must, therefore, hold that the second  respondent had a right of appeal."  

       In ’The Law of Arbitration’ 7th Edition by S.D. Singh at page 359, it is  stated : "31.  Hearing before Appeal Committees.  Rules of  certain Chambers provide for an appeal against an award  to an Appeal committee constituted under arbitration  rules of those Chambers, Managing Committees of these  Chambers themselves act as appeal committees and the  rules also provide for the quorum of these committees to  hear appeals against an award.  When provision  is made  for such appeals, proceedings for the hearing of an appeal  against an award, are part of the proceedings in the  reference."

       It is not necessary for us to comment on the correctness or otherwise  of the said decisions except observing that they were decided having regard  to the provision of the 1940 Act and not the 1996 Act.  Question is whether  the said arbitration would be valid in terms of the provisions of the 1996 Act  and in particular when two awards of the Arbitrators are governed by two  different parts thereof.

THE 1996 ACT :         The United Nations Commission on International Trade Law  (UNCITRAL) adopted in 1985 the Model Law on International Commercial  Arbitration.  The General Assembly of the United Nations recommended  that all countries give due recognition thereto.  The 1996 Act, as noticed  hereinbefore, seek to consolidate and amend the law relating to domestic  arbitration, international commercial arbitration, enforcement of foreign  arbitral awards and to define the law relating to conciliation taking into  account the said UNCITRAL Model Law and Rules.

       The "United Nations Convention on the Recognition and Enforcement  of Foreign Arbitral Awards (New York, 10 June, 1958)", the New York  Convention in common legal parlance, has been ratified by India on 13th  July, 1960. By virtue of its Article VII, the Geneva Protocol on Arbitration  Clauses of 1923 and the Geneva Convention on the Execution of Foreign  Arbitral Awards of 1927 ceases to have effect between the contracting  States. Considering that the New York Convention has been ratified by 108  nations and less than five sovereign contracting states of the Geneva  Convention have not become signatories to the New York Convention,  Chapter II of Part II of the 1996 Act already has minimal applicability and  may soon have none at all, reducing that Chapter to a surplusage.  Prior to coming into force of the 1996 Act, all matters relating to

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arbitration, both domestic and foreign, was governed by several statutes,  viz., the Arbitration Act, 1940 (for short "the 1940 Act"), Arbitration  (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition  and Enforcement) Act, 1961 (for short "the 1961 Act").   India is a signatory  to the UN Convention.  The 1996 Act was enacted pursuant to the  commitment of the Government of India to make an appropriate legislation  amending and consolidating the law in terms of UNCITRAL Model Law  and Rules.

       Chapter 1 Part I applies where the place of arbitration is in India, as  would appear from sub-section (2) of Section 2 of the 1996 Act.  In terms of  sub-section (3) of Section 2, the said part would not affect any other law for  the time being in force by virtue of which certain disputes may not be  submitted to arbitration.  Sub-section (4) of Section 2 reads as under :

       "This Part except sub-section (1) of section 40,   sections 41 and 43 shall apply to every arbitration under  any other enactment for the time being in force, as if the  arbitration were pursuant to an arbitration agreement and  as if that other enactment were an arbitration agreement,  except in so far as the provisions of this Part are in   consistent with that other enactment or with any rules  made thereunder."

       Sub-section (7) of Section 2 provides that arbitral award made under  the said Part shall be considered as a domestic award.  The interpretation  clause contained in Section 2 uses the words ’unless the context otherwise  requires’.  Section 2(b) of the 1996 Act defines an "arbitration agreement" to  mean an agreement referred to in Section 7.  Section 7 defines an arbitration  agreement for the purpose of Chapter I to mean an agreement by the parties  to submit to arbitration all or certain disputes which have arisen or which  may arise between them in respect of a defined legal relationship whether  contractual or not.  In Section 2(c) arbitral award has been defined to include  an interim award whereas in Section 44, foreign award has been defined to  mean an arbitral award on differences between persons arising out of legal  relationships, whether contractual or not, considered as commercial under  the law in force in India in pursuance of an agreement in writing for  arbitration to which the Convention set forth in the First Schedule applies.   An arbitrator is appointed in terms of Section 11 of the Act, providing inter  alia, therein that the parties are free to agree on a procedure for appointing  the arbitrator or arbitrators subject to  sub-section (6) thereof, wherewith we  are not concerned in this case.  Section 12 lays down the grounds for  challenging an award; sub-section (3) whereof provides :

"(3)     An arbitrator may be challenged only if \026

       (a)     circumstances exist that gives rise to  justifiable doubts as to his independence or impartiality,  or         

       (b)     he does not possess the qualifications agreed  to by the parties."

       Section 13 provides that the parties are free to agree on a procedure  for challenging an arbitral award, in terms whereof the jurisdiction of an  arbitrator on the grounds specified under sub-section (3) of Section 12 can  be questioned before the arbitrator himself.  Section 16 authorizes the  arbitral tribunal to rule on its own jurisdiction.  Chapter 6 of the Act lays  down the rules applicable to the substance of a dispute, in terms whereof the  arbitral tribunal is required to decide the dispute submitted to arbitration in  accordance with the substantive law for the time being in force in India.

       Sub-section (2) of Section 28 of the Act provides that the arbitral

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tribunal shall decide ex aequo et bono or as amiable compositeur only if the  parties have expressly authorized it to do so.  Sub-section (3) thereof enjoins  a duty upon the arbitral tribunal to decide  all cases in accordance with the  terms of the contract and to take into account the usages of the trade  applicable to the transaction.  Section 31 provides for the form and contents  of the arbitral award.  Section 32 provides for termination of proceedings; in  terms of sub-section (1) whereof the arbitral proceedings shall be terminated  by the final arbitral award or by an order of the arbitral tribunal under sub- section (2).

       An application for setting aside an arbitral award can be filed in terms  of Section 34 which occurs in Chapter VII of the 1996 Act.  Sub-section (2)  of Section 34 lays down the grounds upon which such arbitral award can be  set aside.   Such an application is required to be filed within three months  from the date on which the parties making that application had received the  arbitral award.  The court, however, has jurisdiction to entertain such an  application within a further period of thirty days, but not thereafter.

       Section 35 postulates finality of an arbitral award.  Such an award is  binding not only on the parties but also on persons claiming under them  respectively.  Section 36 of the 1996 Act reads as under:

       "Enforcement.- Where the time for making an  application to set aside the arbitral award under section  34 has expired, or such application having been made, it  has been refused, the award shall be enforced under the  Code of Civil Procedure, 1908 (5 of 1908) in the same  manner as if it were a decree of the Court."

       The expression ’Arbitral Award has not been defined in Part I, but the  expression ’foreign award’ has been defined in Section 44 of Part II, which  reads as under :

       "44. Definition.-  In this Chapter, unless the  context otherwise requires, "foreign award" means an  arbitral award on differences between persons arising out  of legal relationship, whether contractual or not,  considered as commercial under the law in force in India,  made on or after the 11th day of October, 1960 \026

(a)     in pursuance of an agreement in writing for  arbitration to which the Convention set forth  in the First Schedule applies, and

(b)     in one of such territories as the Central  Government, being satisfied that reciprocal  provisions have been made may, by  notification in the Official Gazette, declare  to be territories to which the said  Convention applies."                     Whereas Part I deals with the domestic arbitration, Part II deals with the  enforcement of certain foreign awards.   

       We may notice that Section 9(b) of the 1961 Act contained that  nothing in that Act would apply to any award made on an arbitration  agreement governed by the law of India.  Part II of the 1996 Act makes an  exception to the effect that unlike  Section 9(b) of the 1961 Act, it makes the  position absolutely clear that the character of an award is determined by the  place where it is made.

       Section 48 provides for conditions for enforcement of foreign awards.   Section 49 lays down that where the court is satisfied that the foreign award  is enforceable under the said chapter, the award shall be deemed to be a

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decree of that court.     

       The 1996 Act contains a coherent and model framework.  It envisages  only one award under one set of rules.  It does not contemplate multi-layer  awards governed by different sets of rules.  It has introduced several changes  of which three are worth taking note of : (i)  fair resolution of a dispute by an  impartial tribunal without any unnecessary delay or expenses; (ii) Party  autonomy is paramount subject only to such safeguards as are necessary in  public interest; and (iii) The arbitral tribunal is enjoined with a duty to act  fairly and impartially.   

       The important shortcomings that are very much apparent from bear  reading of the Arbitration and Conciliation Act, 1996 can be said as follows:  (i)     No provision is made for expediting awards or the subsequent  proceedings in Courts where applications are filed for setting aside  awards. (ii)    An aggrieved party has to start again from the District court for  challenging the award.

In this respect it would be pertinent to mention about Arbitration and  Conciliation (Amendment) Bill, 2003. It was based on the comprehensive  review of the Arbitration and Conciliation Act, 1996 undertaken by the Law  Commission of India in its 176th Report. Few of the salient features of the  Bill are:

(i)     it provides that where the place of arbitration is in India, Indian Law  will apply whether the arbitration is between the Indian Parties or an  International arbitration in India. (ii)    it also provides for the Arbitration Division in the High Courts and  also for its jurisdiction and special procedure for enforcement of  awards made under the Arbitration Act, 1940 including awards made  outside India.

DIFFERENCE BETWEEN THE 1996 ACT AND THE 1940 ACT :

The 1996 Act makes a radical departure from the 1940 Act. It has  embodied the relevant rules of the modern law but does not contain all the  provisions thereof.  The 1996 Act, however, is not as extensive as the  English Arbitration Act.         Different statutes operated in the field in respect of a domestic award  and a foreign award prior to coming into force of the 1996 Act, namely, the  1940 Act, the Arbitration (Protocol and Convention) Act, 1937 and the  Foreign Awards (Recognition and Enforcement) Act, 1961.  All the  aforementioned statutes have been repealed by the 1996 Act and make  provisions in two different parts, namely, matters relating to domestic award  and foreign award respectively.

       The Scheme of 1996 Act is absolutely distinct and different from the  1940 Act as also the 1961 Act.

       In the 1940 Act, no reason was required to be stated in the award  unless otherwise agreed upon.  In the 1996 Act, reasons are required to be  stated unless agreed to otherwise by the parties.  The court’s intervention is  sought to be minimized under the provisions of the 1996 Act not only having  regard to the concerns expressed in the international community as regard  delay in the arbitration proceedings but also in view of the fact that an award  under the 1996 is to be a reasoned one.  In a large number of judgments, this  Court has emphasized that the extent of power of the court’s intervention in  relation to a reasoned award and unreasoned one would be different.   Whereas in relation to an unreasoned award, the court’s jurisdiction to  interfere with the award was absolutely limited, a greater latitude had been  given in relation to a reasoned award.

       After the 1996 Act came into force, under Section 16 of the Act the  party questioning the jurisdiction of the arbitrator has an obligation to raise

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the said question before the arbitrator.  Such a question of jurisdiction could  be raised if it is beyond the scope of his authority.  Such a question was  required to be raised during arbitration proceedings or soon after initiation  thereof as a preliminary issue.  Such a decision would be subject to  challenge under Section 34 of the Act.  In the event, the arbitrator opined  that he had no jurisdiction in relation thereto an appeal thereagainst was  provided for under Section 37 of the Act.

       In terms the 1940 Act, an award was required to be made a rule of  court.  In such a proceeding, an objection in terms of Section 30 of the 1940  Act would be entertained.  Sub-section (2) of Section 30 of the 1996 Act  enjoins a duty upon the Arbitrator to promote settlement.  Such an  application was required to be filed within the period specified therefor  under the Limitation Act, 1963.

       Section 31 of the 1996 Act is in tune with Article 31 of the Model  Law.  The requirements contained therein, most of which are mandatory, are  specified therein.  Whereas under the 1940 Act only an interim award or  final award could be made;  four types of awards are contemplated under the  1996 Act, viz., interim award, additional award, settlement or agreed award  and final award.

       Section 33 of the 1996 Act clearly postulates that the Arbitrator has  the jurisdiction to correct and interpret an award in terms whereof, he may  amend his core award.   

AWARD UNDER THE 1996 ACT : Section 34 of the Act provides for the mode and manner in which an  arbitral award can be questioned.  Such a course can be taken only by filing  an application which shall be in accordance with sub-section (2) and sub- section (3).  An award in the Indian part of the award, thus, could be set  aside only by filing an application.  The law, therefore, does not contemplate  that despite the rigour of Section 34 of the Act, an award which although not  challenged and becomes enforceable and executable still can be subject  matter of a foreign award.  An award as soon as it becomes enforceable, it  becomes final and binding in terms of Section 35 of the Act.         The award, which is finally being either made by way of partial award  or final award, after the expiry of a period of thirty days becomes a decree in  terms of Section 36 of the 1996 Act.  When an award has been made, signed  and delivered to the parties, it is final and binding on the parties and persons  claiming under them respectively.   

       By reason of Section 36 of the 1996 Act, a legal fiction has been  created to the effect that on expiry of the period prescribed for setting aside  an award as envisaged under Section 34 of the Act, the award becomes  capable of being executed and enforced.  The concept of provision for an  appeal before another forum from an award and that too when a part of the  award would be a domestic award and another part would be a foreign award  is not contemplated under the 1996 Act.

       An appeal as against an award in terms of an agreement may be or  may not be filed within the time specified under Section 34 of the Act.  Even  the appellate arbitrator (if we may use the said term) would have no  jurisdiction to pass an order of injunction staying the operation of the  original award of the arbitrator.  The 1996 does not contemplate that only  because an appeal has been filed against the award, the time envisaged under  Section 34 shall cease to run.  If during pendency of the so-called appeal an  award becomes a decree, the appellate arbitrator cannot set aside the said  decree.  An appeal contemplates that the procedure before both the  authorities would be the same.  An appeal is a continuation of the same  proceeding.  It does not comprehend two different procedures, two separate  sets of evidences.  An appeal does not take away the nature of the award.  In  other words, two different nature of the awards is not contemplated; only  because there is a provision for appeal.  We are not oblivious of the fact that  rules of some chambers contemplate such a provision but in such an event

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the one that is made by the first arbitrator does not become final.  The appeal  committee follows the same procedure, relies upon the same evidence unless  additional evidence either by consent of the parties or otherwise is permitted.   By reason of such a procedure applicability of different set of rules is not  envisaged.  It is within the same jurisdiction.  It does not contemplate two  different and distinct jurisdictions.  But in the present case, parties were not  bound by any such agreement of trade or community association. As the  parties were individual companies and only guided by their agreement, the  above situation may not be applicable.

       It is not in dispute that the provisions contained in Part I and Part II of  the 1996 Act are distinct and different.  Procedures for enforcing such  awards are different.  Consequences of the awards made under two different  parts are absolutely different.

       What can be contemplated under the UNCITRAL Model Rule is Med- Arb contracts or similar such contracts and not a contract of present nature.

       According to Section 34(3) of the 1996 Act, the maximum period of  limitation for making an application is three months from the date on which  the applicant had received the arbitral award or the request under section 33  was disposed of and another thirty days from the last day of the third month.  Section 34 which refers to "challenge to arbitral award" strives to balance  between the party autonomy and judicial control of the arbitral result with  the object of speed and efficiency. The balance has to come down strongly  in favour of finality, and against judicial review, except in few  circumstances. So, the main object of the provision is to determine the  whether the award has become final and binding or not. Thus, the section  depicts a position whereby an arbitral award can be challenged for the  purpose of setting aside of the same at the first instance without much delay.  The Court would set aside the award only on certain circumstances.  Thereby, it is the legislative intention that such a matter is settled without  much delay or much intervention of court. So, the finality of the challenged  award would be decided by Court under section 34 of the 1996 Act and  appeals are allowed against certain orders of courts or tribunals on certain  grounds under Section 37 of the Act [Furthermore, section 37(3) provides  that no second appeal shall lie from an order passed in appeal, although it  does not take away the right to appeal in Supreme Court]. Throughout, the  provisions nowhere it is mentioned that an appeal can be made or an  application can be filed against the award to a separate arbitration board or  forum. So, the finality and legality has to be determined by the Court if it is  so challenged. Otherwise, reference to a second arbitration panel would  consume more time as arbitrators would decide the matter after listening the  dispute afresh. Presuming that the reference to the arbitrator is made for  second time and subsequently arbitrator gives an award, it would be more  time consuming and complex if validity of the first award is challenged  along with second award. So, following the scheme of the 1996 Act, it is  more viable and convenient to accept the first award without opting for  second time arbitration and then to decide it, if the award is challenged.  

       There can be a situation where an appeal is made against foreign  award decided and settled  abroad and the appeal will be made in India  according to our domestic statute. For example, when one of the parties is an  international company or organisation, first the arbitration will be done  according to New York Convention in foreign country and thereafter, if  there is any grievance against the award challenge can be made in India  under the Act of 1996.            Even the principles analogous to Order XLI, Rule 1 of the Code of  Civil Procedure envisages that filing of an appeal shall automatically not  mean stay of the operation of the decree.  In that view of the matter, mere  filing of an appeal would not make the award unenforceable.  No prayer for  stay of the operation of the award had been prayed for nor the appellate  arbitrator had directed stay of the operation of the award.  The 1996 Act  does not contemplate that the arbitrator would be entitled to sit in appeal

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over an executable decree.  Even the doctrine of merger shall not apply  inasmuch as the said doctrine contemplates an appellate authority who can  pass the same type of order which could be passed by the original authority.   If by fiction of law an award becomes a decree without the intervention of  the court, the nature of an award which can be passed by the appellate  arbitrator, would loose the character of an award.  The doctrine of merger,  therefore, would not apply.  A decree, whether by reason of a statute or a  legal fiction created under the statute, would have different and distinct  connotation vis-‘-vis an award.  By agreement of the parties, a private  adjudicator cannot sit in appeal over an enforceable decree.  A decree passed  by a court of law may be set aside by that court itself in exercise of its  review jurisdiction or by an appellate court created in terms of a statute.  A  private adjudicator, it will bear repetition to state, cannot overturn a decree  created by a legal fiction.  A legal fiction, it is well settled, must be given its  full effect.  [See Bhavnagar University v. Palitana Sugar Mill (P) Ltd. and  Others, (2003) 2 SCC 111, Ashok Leyland Ltd. v. State of T.N. And  Another, (2004) 3 SCC 1 and Bharat Petroleum Corporation Ltd. v. P.  Kesavan and Another, (2004) 9 SCC 772.]

A domestic award, in view of the statutory scheme, is subject to the  supervision of a court of law.  Its jurisdiction encompasses within its  purview over the entire process of arbitration.  An award is finally subject to  a party agreeing to take recourse to the provisions of Section 34 of the 1996  Act and it becomes a decree.  An award can be set aside only if the court  comes to the conclusion that one or the other grounds contained in Section  34 of the Act exist.  A challenge to the domestic award can, thus, be made  only before a national court designated by the Act itself and on the grounds  specified in Section 34 of the Act.  A fortiori, the validity of a domestic  award cannot be questioned before   any other forum including the forum  chosen by the parties, if any.

       We may also notice that Section 66 of the English Arbitration Act  provides for obtaining leave from the court for enforcing an award.  The  Indian law does not contain such a provision.  Therefore, if a leave is not  granted, a claimant may pursue an independent cause of action which  accrues when an award is not honored.  Sub-section (3) of Section 66 of  English Arbitration Act provides that leave to enforce shall not be given  where, or to the extent that, the person against whom it is sought to be  enforced shows that the tribunal lacked substantive jurisdiction to make the  award.  Section 34 of the Indian Arbitration Act does not make such a  provision.  But, the Indian law is also to be construed in the light of the  Model Rule.  Model Rules being referred to as the 1996 Act does not contain  any specific provision in this behalf where, thus, the domestic law is silent,  the court may interpret a provision in the light of the international  conventions.  [See Liverpool & London S.P. & I Asson. Ltd. v. M.V. Sea  Success I, (2004) 9 SCC 512, Pratap Singh v. State of Jharkhand, (2005) 3  SCC 551 and Zee Telefilms Ltd. v. Union of India, (2005) 4 SCC 649]    UNCITRAL Model Rule does not contemplate such a situation.

JURISDICTION ISSUE :  An award made on the basis of an invalid agreement would be a  nullity.  Such an award would be coram non judice.  [See Smith v. East  Elloe Rural District Council, (1956) 1 All ER 855].  The law in this behalf in  India is clear and explicit.  An order passed by a Tribunal lacking inherent  jurisdiction would be a nullity.  Where such a lack of jurisdiction is  established, the same goes to the root of the matter.  [Balvant N. Viswamitra  and Others v. Yadav Sadashiv Mule (Dead) Through LRS. and Others ,  (2004) 8 SCC 706].

       The 1996 Act, puts domestic awards and foreign awards in two  different and distinct compartments, subject of course to certain overlapping  provisions as has been noticed in some decisions of this Court.

       It may not, therefore, be possible to hold that the 1996 Act  contemplates that an arbitration award can be an admixture of domestic

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award and foreign award.

       The 1996 Act in no uncertain terms speaks of an arbitration  agreement, as would appear from the interpretation clause contained in  clause 2(b) as also Section 7 thereof, which excludes the concept of two tier  arbitration capable of being enforced under two different chapters..           A multi-tier arbitration may be  held to be operative and valid when it  was governed solely by the 1940 Act or the 1961 Act inasmuch as in such an  event, the procedure laid down therein could have been followed.  The 1996  Act, however, on the other hand, repeals and replaces not only the 1940 Act  but also the 1961 Act and provides for different forums and different  procedures for resolution of a dispute through an arbitrator.   It is  inconceivable that one part of the arbitration agreement shall be enforceable  as a domestic award but the other part would be enforceable as a foreign  award.  An award made in terms of one arbitration  agreement can either be  a domestic award or a foreign award; wherefor different procedures have  been laid down, even when the consequences from such award are different  and when the grounds thereof are also different and distinct.   The  fundamental legislative policy brought out by the 1996 Act, thus, being not  in consonance with having two tier arbitration which had two different  statutes governed by two different provisions and would be subject to  different procedures, in our opinion, is not valid.  Whereas, in the decisions  and authorities relied upon by Mr. Cooke, the second arbitration was also  before the same institution governed by the laws of the same country, in the  instant case, the Indian law would be applicable in relation to the first part of  the arbitration, namely, the Indian Council of Arbitration, whereas second  part thereof would be governed by International Chamber of Commerce,  Paris Rules.  Both parts of the arbitration proceeding, therefore, have not  been carried out under the same institution.  An arbitration agreement  envisioning different procedures at different stages cannot be countenanced  under the 1996 Act.  Had the appeal been provided within the set-up of  Indian Council of Arbitration, subject to the compliance of time frame,  probably the agreement would have been valid.  But, it is not so.  As  observed in Hiralal Agarwalla (supra), such a submission must be within a  submission.  In such an event the first award may not be capable of being  filed in court to which question Ghosh, J. did not go into.

       A person may waive his right.  Such waiver of right is permissible  even in relation to a benefit conferred under the law.  But it is trite that no  right can be waived where public policy or public interest is involved.   Jurisdiction on a tribunal/ court is a creature of statute.  Jurisdiction on  Arbitration can be conferred by agreement between the parties.  But, the  contract between the parties must be in obedience to law and not in  derogation thereof.  Contracting out is permissible provided it does not deal  with a matter of public policy.  An agreement under no circumstances can  violate the Public Policy.       

The appellate Arbitrator, therefore, could not have made an award in  terms whereof a deemed decree passed by a court of India capable of being  enforced in terms of Section 34 of the 1996 Act would stand set aside.  The  said award, therefore, is contrary to the legislative policy in India.

       A jurisdictional issue can be raised in two ways.  A party to an  arbitration proceeding may take part in arbitral proceedings and raise the  question of  jurisdiction before the arbitral tribunal.  He may also challenge  the jurisdiction of the arbitrator without participating in the arbitral  proceedings.   

Under the English Arbitration Act, an appeal on jurisdiction would  involve rehearing of the matter by the court at which the party can adduce  evidence and reargue the entire issue of evidence.  There is absolutely no  reason as to why the said principle shall not apply to India.  If a  jurisdictional issue can be raised before the court even for the first time,  the  court would be entitled to take on records even the fresh hearing, it goes  without saying that it would also be entitled to determine the jurisdictional

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fact.

       In Primetrade AG v. Ythan Ltd. [(2006) 1 All ER 367], jurisdictional  issue based on interpretation of documents executed by the parties fell for  consideration having regard to the provisions of the Carriage of Goods by  Sea Act, 1992.  It was held that as the appellant therein did not become  holder of the bills of lading  and alternatively as the conditions laid down in  Section 2(2) were not fulfilled, the arbitrator had no jurisdiction to arbitrate  in the disputes and differences between the parties.         

PUBLIC POLICY :

Lord Mustill had once said that "The great advantage of arbitration is  that it combines strength with flexibility\005\005Flexible because it allows the  contestants to choose the procedure which fit nature of the dispute and the  business context in which it occurs." Arbitration was meant to be a speedy,  expeditious and cost-effective method of dispute reconciliation. So, the  primary object of ADR movement is avoidance of vexation, expense and  delay and promotion of the ideal of "access to justice".

       But, then the contract must be within the legal framework.

In terms of the laws of India governing the field, the parties cannot  contract out of the statute and take recourse to such a procedure which  would for all intent and purport make the provisions of Sections 34 and 36  of the 1996 Act nugatory by entering into contractual arrangement or  otherwise.  The 1996 Act does not postulate that the parties can contract out  of the provisions thereof.  The arbitration agreement of the parties, therefore,  must be made strictly in terms of the provisions of the 1996 Act.   

       The Arbitration Act, 1991 (the Statute of Canada) which is amended  by the Statutes of Ontario, 2006 expressly provide for "Contracting Out"  under which the parties to an arbitration agreement may agree, expressly or  by implication, to vary or exclude any provision of this Act except few  circumstances, like, equality and fairness, setting aside of award,  enforcement of award, etc.  

       Contracting out of the appeals procedure is possible before any  dispute arises in all cases under the Arbitration Act, 1996 (U.K.). The Act  contains express provision that every award shall contain reasons unless it is  an agreed award or the parties have expressly agreed to dispense with the  reasons (Section 52). The parties may want to dispense with reasons if  neither side is contemplating an appeal and they do not want to incur the  additional costs involved. Thus control over whether reasons should be  given will be placed in the hands of the parties, rather than in the hands of  the arbitral tribunal or the court.

       The Act confers a number of powers on the arbitral tribunal unless  parties otherwise agree. For example, under Section 48, under Section 35,  and under Section 39. There are also powers conferred on the court but  which are nevertheless subject to the contrary agreement of the parties, such  as to entertain appeals on questions of law in limited arbitration, also to take  certain other steps short of dismissal where a party fails to comply with a  peremptory order Section 47 to make awards on different issues.

       But Indian statute, i.e., the 1996 Act does not provide such  "contracting out" provision so that parties can fix / determine, by their terms  of agreement, the procedure of appeal after the award is made.   

Such a contractual arrangement, having regard to the provisions  contained in Section 23 of the Indian Contract Act shall be void being  opposed to public policy.  The parties, it is trite, cannot by contract or  otherwise confer jurisdiction on a forum which is prohibited by law in force  in India.  The law in force in India does not permit to limit or avoid the  operation of the statutory provisions.

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       The expression ’public policy’ in India has been used for three  different situations, namely, (i) an arbitral award may be set aside under  Section 34(2)(b) of the 1996 Act if it is in conflict with the public policy of  India; (ii) enforcement of a foreign award (New York Convention Award)  may be refused under Section 48(2)(b) if the enforcement of the award  would be contrary to the public policy of India; and (iii) a foreign award  (Geneva Convention Award) may be enforceable under Section 57(1)(b) if  the enforcement of the award is not contrary to the public policy or law of  the India.

       The expression ’public policy’ will have the same connotation in  respect of an arbitration agreement or an award.  The judicial intervention in  such matters has never been free from difficulty.  Whereas refusing  enforcement of an arbitral award has been viewed with much skepticism, the  English Courts are more often than not have refused to enforce a foreign  award on public policy ground holding that common law recognizes that  English public policy is paramount.  In some jurisdiction even serious  procedural defects in the arbitral proceedings had been held to provide for  enough justification for refusal to afford foreign award.  [Russell on  Arbitration, 22nd edition, 2003, page 389, para 8-046 and Chitty on Contract,  29th edition, 2004, page 961, para 16-045].  We do not see any reason as to  why the Indian law should be held to be different.

       Even under the 1940 Act, this Court in Renusagar Power Co. Ltd. v.  General Electric Co. [(1994) Supp 1 SCC 644] laid down that the arbitral  award can be set aside if it is contrary to: (a) fundamental policy of Indian  Law, (b) the interests of India; or (c) justice or morality.  A narrower  meaning to the expression ’public policy’ was given therein by confining the  scope of judicial review intervention of the arbitral award only when the  aforementioned three grounds set forth therein.  An apparent shift can,  however, be noticed from the decision of this Court in Oil and Natural Gas  Corporation Ltd. v. Saw Pipes Ltd. (for short ’ONGC’)[(2003) 5 SCC 705].   This Court therein referred to an earlier decision of this Court in Central  Inland Water Transport Corporation Ltd.  v. Brojo Nath Ganguly [(1986) 3  SCC 156] wherein the applicability of the expression ’public policy’ on the  touchstone of Section 23 of the Indian Contract Act and Article 14 of the  Constitution of India came to be considered.  This Court therein was dealing  with unequal bargaining power of the workmen and the employer and came  to the conclusion that any term of the agreement which is patently arbitrary  and/ or otherwise arrived at because of the unequal bargaining power would  not only be ultra vires Article 14 of the Constitution of India but also hit by  Section 23 of the Indian Contract Act.  In ONGC (supra), this Court apart  from the three grounds stated in Renusagar (supra) added another ground  thereto for exercise of the court’s jurisdiction in setting aside the award if it  is patently arbitrary stating:

"\005What is for public good or in public interest or what  would be injurious or harmful to the public good or  public interest has varied from time to time. However,  the award which is, on the face of it, patently in violation  of statutory provisions cannot be said to be in public  interest. Such award/judgment/decision is likely to  adversely affect the administration of justice. Hence, in  our view in addition to narrower meaning given to the  term "public policy" in Renusagar case it is required to  be held that the award could be set aside if it is patently  illegal. The result would be \027 award could be set aside if  it is contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality, or (d) in addition, if it is patently illegal. Illegality must go to the root of the matter and if the  illegality is of trivial nature it cannot be held that award  is against the public policy. Award could also be set aside

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if it is so unfair and unreasonable that it shocks the  conscience of the court. Such award is opposed to public  policy and is required to be adjudged void."

       By referring to the aforementioned decisions, we do not mean to say  that we agree with the law laid down therein but we have referred thereto  only for the purpose  of  finding out whether the expression ’public policy’  is construed narrowly or broadly.  It does not, however, make any substantial  difference for determining the question in the sense that arbitration  agreement contained in clause 14 is opposed to public policy as it is  violative of the Indian statutes.

       Section 23 of the Indian Contract Act, 1872 embodies the doctrine of  public policy as evolved by the common law.  It takes within its sweep  transactions: (i)     the consideration or object whereof is forbidden by law; or (ii)    of such a nature, if permitted, would defeat the provisions of any  law; or (iii)   if fraudulent or involves or implies injury to the person or property  of another where the court regards it immoral, or opposed to public  policy.

       In various decisions, this Court has taken into consideration some of  the well-known authorities for determining the question as to whether the  executive can be given a power to decide as to what would be a public  policy.   

       In Godawat Pan Masala Products I.P. Ltd. v. Union of India [(2004) 7  SCC 68], it was held that it is always in the domain of the judiciary to  interpret what is morality at a given point of time.   

       The doctrine of public policy undoubtedly is governed by precedents.   Its principles have been crystalised under different heads.  [See Gherulal  Parakh v. Mahadeodas Maiya, 1959 Supp (2) SCR 406, Central Inland  Water Transport Corpn. Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156,   Zoroastrian Coop. Housing Society Ltd. v. District Registrar, Coop.  Societies (Urban), (2005) 5 SCC 632 and State of Rajasthan and Others v.  Basant Nahata, (2005) 12 SCC 77.]

       In the 1940 Act, there was no specific provision for setting aside the  arbitration award on the ground that the same was in conflict with the public  policy in India.  Section 30(c) was held to be wide enough to cover the heads  generally comprehended by the expression "public policy".

       In Dharma Prathishthanam v. Madhok Construction Pvt. Ltd. [(2005)  9 SCC 686 : 2004 (3) Arb. LR 432(SC)], a 3-Judge Bench of this Court held  that where the appointment of an arbitrator and the reference of a dispute to  him is void ab initio, the resulting award would also be liable to be set aside  being totally incompetent or invalid.  Thus, if an award is set aside to be  enforced, the same may be declined for the reason that it is nullity, incapable  of being enforced.   

       An agreement which is illegal would vitiate the arbitration agreement  as also an award, but in some cases an arbitration agreement may be valid or  even the arbitrator may determine the question of illegality of the contract.   [See Harbour Assurance Co (UK) Ltd v. Kansa General International Co  Ltd, (1993) 3 All ER 897]  What would, however, be the nature of the  illegality would depend upon the law in force of the country.   

       An arbitration agreement must satisfy the requirements of its  definition as contained in Section 7 of the Arbitration Act.  Within the  meaning of Section 7, an arbitration agreement must mean a valid arbitration  agreement.  Section 44 of the Arbitration Act defines a foreign award.  The  said definition, however, would not apply where ’unless the context  otherwise requires’ clause is attracted.

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       A definition clause, therefore, does not necessarily apply in all  possible contexts in which the word may be found therein.  The expression  came to be considered in a decision of this Court in Bennett Coleman and  Co. (P) Ltd. v. Punya Priya Das Gupta [(1969) 2 SCC 1] wherein it was held  that the definitions of ’a newspaper employee’ and ’a working journalist’  have to be construed in the light of and subject to the context unless  otherwise required.

       An award made outside India, even if governed by Indian law, may be  a foreign award but it must satisfy two conditions, viz., that it is made (i) in  pursuance of an agreement in writing for arbitration to which the New York  Convention applies and (ii) in one of such territories which the Central  Government has notified in the Official Gazette to be a territory to which the  New York Convention applies.   In this case, it appears that New York  Convention does not apply in its entirety in the sense that the first part of the  award would be governed by the ICA Rules whereas the second part would  be governed by  Paris Rules.

       The question as regard the legislative policy vis-avis the arbitration  agreement, therefore, will have to be considered from the said angle.

       In Montrose Canned Foods Ltd. v. Eric Wells (Merchants) Ltd,   (1965) Lloyd’s Rep 597], where buyers alleged various procedural defects in  arbitration proceedings, and applied to the court for an order setting aside or  remitting the award, Megaw J held that he had the jurisdiction to make an  order despite the existence of an appeal procedure and he exercised his  discretion to remit the award. Magaw J proceeded on the basis that there was  no contractual provision requiring the buyers to exhaust appeal procedure  before applying to the court for review. This may raise the question whether  it is permissible to exclude any right of access to the courts pending the  hearing of an appeal. Megaw J assumed that such provision would be valid.  But there should be question whether riles of that type can survive the public  policy rule that the parties cannot oust the jurisdiction of the courts.  

       In Brace Transport Corporation of Monrovia, Bermuda v. Orient  Middle East Lines Ltd., Saudia Arabia and others [AIR 1994 SC 1715], this  Court held that when a court is asked to enforce an award, its legal effect  must not only be recognized but legal sanctions must also be granted to  ensure that it is carried out.  If an award is a nullity, question of its  enforcement would, thus, not arise.

       It is of some significance to note that in terms of Section 45 of the  1996 Act, the court may refer the parties to arbitration unless it finds that the  said agreement is null and void.  Thus, if a court while exercising its  jurisdiction under Section 45 of the 1996 Act is required to arrive at a  finding as regards validity of the arbitration agreement, there is absolutely  no reason as to why it cannot do so while enforcing an award.

       If the parties did not expressly make a choice of the law governing the  arbitration agreement, a presumption would arise that the proper law  governing the arbitration would be the same as law of the country in which  arbitration is agreed to be held.  Sub-section (2) of Section 2 of the 1996 Act  categorically states that Part I would apply where the place of arbitration is  in India and, thus, by necessary implication, ousts the applicability thereof if  the place of arbitration is outside India, subject, may be, to  just exceptions.

       Clause 16 of the agreement reads as under: "16. Construction:         The contract is to be constructed and to take  effect as a contract made in accordance with the  laws of India."

       In the instant case, indisputably, the law which would govern the  arbitration agreement is, in view of Clause 16 of the agreement, the Indian

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Law.         We are not unmindful that the decision of this Court in Oil & Natural  Gas Corporation Ltd. vs. Saw Pipes Ltd. [(2003) 5 SCC 705] had invited  considerable adverse comments but the correctness or otherwise of the said  decision is not in question before us.  It is only for a larger Bench to consider  the correctness or otherwise of the said decision.  The said decision is  binding on us.  The said decision has been followed in a large number of  cases.  [See The Law and Practice of Arbitration and Conciliation by O.P.  Malhotra, Second edition, page 1174.]         In the said treatise, the learned author has considered the correctness  of ONGC (supra) from a large conspectus and opined at page 1184-1185:

"This survey of the contemporary English and Indian  authorities reveals no justification to fault ONGC.  It is  carefully calibrated judgment supported by research into  comparative law and sound rationale.  This decision only  modifies and expands the scope of public policy of India  as adumbrated in Renusagar.  It adds one more head, i.e.,  patent illegality of the award provided that the illegality  goes to the root of the matter or is so unfair and  unreasonable that it shocks the conscience of the court.   Contrarily, it supports Renusagar in letter and spirit.  If  the court had not so modified the law, it would have  failed in its duty to prevent subversion of societal goals  and endangering the public good.."

       One may agree with the said view of the learned author or may not  but, as at present advised, we have to abide by the decision in ONGC (supra)  and, thus, the doctrine of public policy must be held to be a ground for  setting aside an arbitration agreement and consequently an award.

       Such patent illegality, however, must go to the root of the matter.  The  public policy, indisputably, should be unfair and unreasonable so as to shock  the conscience of the court.  Where the Arbitrator, however, has gone  contrary to or beyond the expressed law of the contract or granted relief in  the matter not in dispute would come within the purview of Section 34 of the  Act.   

       What would be a public policy would be a matter which would again  depend upon the nature of transaction and the nature of statute.  For the said  purpose, the pleadings of the parties and the materials brought on record  would be relevant so as to enable the court to judge the concept of what was  a public good or public interest or what would otherwise be injurious to the  public good at the relevant point as contradistinguished by the policy of a  particular government.  [See State of Rajasthan v. Basant Nahata, (2005) 12  SCC 77.]

It is not in dispute that the conditions precedent for applying Part II of  the 1996 Act have not  been fulfilled in the instant case.  Section 51 thereof  to which reference has been made provides for a saving clause in relation to  a right which had accrued to a party. A fine distinction exists between ’to  determine proper law’ and ’to determine proper forum of court’.  The effect  of a foreign award is different from the effect of the domestic award.  In  terms of Section 46 of the Act, the foreign awards are binding.   

PRECEDENTS :

       We may at this juncture notice some of the decisions cited at the Bar.

       In National Thermal Power Corporation Vs. The Singer Company and  others [AIR 1993 SC 998], this Court was construing the provisions of the  1961 Act.  What would be the proper law in the context of an arbitration  proceeding was stated, thus:

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"Proper law is thus the law which the parties have  expressly or impliedly 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 conflict of laws rules. The law of  contract is not affected by the doctrine of renvoi. (See  Dicey, Vol. II, p. 1164.)"

       In Sumitomo Heavy Industries Ltd. Vs. ONGC Ltd. and Others  [(1998) 1 SCC 305] this Court was dealing with a case prior to coming into  force of the 1996 Act.  This Court in that case noticed the provisions  contained in Section 47 of the 1940 Act and Section 9(b) of the 1961 Act  stating: "17\005By reason of Section 9(b), the 1961 Act does not  apply to any award made on an arbitration agreement  governed by the law of India. The 1961 Act, therefore,  does not apply to the arbitration agreement between the  appellant and the first respondent. The 1940 Act applies  to it and, by reason of Section 14(2) thereof, the courts in  India are entitled to receive the award made by the  second respondent. We must add in the interests of  completeness that it is not the case of the appellant that  the High Court at Bombay lacked the territorial  jurisdiction to do so."

       In Bhatia International Vs. Bulk Trading S.A. and Another [(2002) 4  SCC 105] this Court was considering a pre-award situation.  Therein the  court was concerned with the power of the court to issue interim order and in  that context it fell for consideration whether Sections 9 and 17 occurring in  Part I of the 1996 Act would apply to the arbitration proceedings falling  under Part II.  It was opined :

"26\005The general provisions will apply to all Chapters or  Parts unless the statute expressly states that they are not  to apply or where, in respect of a matter, there is a  separate provision in a separate Chapter or Part. Part II  deals with enforcement of foreign awards. Thus Section  44 (in Chapter I) and Section 53 (in Chapter II) define  foreign awards, as being awards covered by arbitrations  under the New York Convention and the Geneva  Convention respectively. Part II then contains provisions  for enforcement of "foreign awards" which necessarily  would be different. For that reason special provisions for  enforcement of foreign awards are made in Part II. To the  extent that Part II provides a separate definition of an  arbitral award and separate provisions for enforcement of  foreign awards, the provisions in Part I dealing with these  aspects will not apply to such foreign awards. It must  immediately be clarified that the arbitration not having  taken place in India, all or some of the provisions of Part  I may also get excluded by an express or implied  agreement of parties. But if not so excluded the  provisions of Part I will also apply to "foreign awards".  The opening words of Sections 45 and 54, which are in  Part II, read "notwithstanding anything contained in Part  I". Such a non obstante clause had to be put in because  the provisions of Part I apply to Part II."

                                                       [Emphasis supplied]

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       Although correctness of the said decision is open to question, we need  not go into the same as at present advised.            In Furest Day Lawson Ltd. Vs. Jindal Exports Ltd. [(2001) 6 SCC  356], this Court opined that "Once the court decides that the foreign award is  enforceable, it can proceed to take further effective steps for execution of the  same. There arises no question of making foreign award a rule of  court/decree again"; but enforceability thereof would depend upon the  validity of the arbitration agreement.

       In Sundaram Finance Ltd. vs. NEPC India Ltd.  [(1999) 2 SCC 479],  this Court held :        

"The 1996 Act is very different from the Arbitration Act,  1940. The provisions of this Act have, therefore, to be  interpreted and construed independently and in fact  reference to the 1940 Act may actually lead to  misconstruction. In other words, the provisions of the  1996 Act have to be interpreted being uninfluenced by  the principles underlying the 1940 Act. In order to get  help in construing these provisions, it is more relevant to  refer to the UNCITRAL Model Law rather than the 1940  Act."

       In Sundaram Finance (supra), this Court categorically held that an  interim order can be passed  under the 1996 Act in terms of Section 9 only  during the arbitral proceedings or before the arbitral proceedings; whereas  under the 1940 Act, the party could have applied for appointing arbitrator  even when no matter was pending before the  court.   

       In Thyssen Stahlunion GMBH Vs. Steel Authority of India Ltd.  [(1999) 9 SCC 334], it was held  : "Present-day courts tend to adopt a purposive approach  while interpreting the statute which repeals the old law  and for that purpose to take into account the objects and  reasons which led to the enacting of the new Act. We  have seen above that this approach was adopted by this  Court in M.M.T.C. Ltd. case. Provisions of both the Acts,  old and new, are very different and it has been so  observed in Sundaram Finance Ltd. case. In that case,  this Court also said that provisions of the new Act have  to be interpreted and construed independently and that in  fact reference to the old Act may actually lead to  misconstruction of the provisions of the new Act. The  Court said that it will be more relevant, while construing  the provisions of the new Act, to refer to the UNCITRAL  Model Law rather than the old Act. In the case of Kuwait  Minister of Public Works v. Sir Frederick Snow and  Partners the award was given before Kuwait became a  party to the New York Convention recognised by an  Order in Council in England. The House of Lords held  that though a foreign award could be enforced in England  under the (U.K.) Arbitration Act, 1975 as when the  proceedings for enforcement of the award were initiated  in England Kuwait had become a party to the  Convention. It negatived the contention that on the date  the award was given Kuwait was not a party to the New  York Convention."

       At this juncture, we may notice a decision in Adam v. Cape Industries  [(1990) 1 Ch 433], wherein, although the court was dealing with the  enforcement of foreign judgments, it  laid down the principles relevant to the

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enforcement of New York Convention awards stating that where it was  alleged that a New York Convention award should not be enforced because  such enforcement would do substantial injustice and, therefore, was contrary  to public policy in respect whereof the following had, normally, to be  included amongst the relevant considerations :

?       the nature of the procedural injustice; ?       whether the party resisting enforcement had invoked the  supervisory jurisdiction of the seat of the arbitration; ?       whether a remedy was available under that jurisdiction; ?       whether the courts of that jurisdiction had conclusively  determined the complaint in favour of upholding the award; ?       if the party resisting enforcement had failed to invoke that  remedial jurisdiction, for what reason and, in particular,  whether it was acting unreasonably in failing to do so.

ANALYSIS :

It is not in dispute that the contention of HCL from the beginning was  that the provision contained in the second part of the arbitration is void ab  initio and of no effect.  As noticed hereinbefore, it even filed a suit prior to  entering into the reference by the Arbitrator. Even after the award was  passed, proceedings before appropriate courts had been initiated.  In its  written statement filed before the arbitral tribunal, the question as regards  the jurisdiction of the arbitrator was questioned by it.  The learned arbitrator  had, relying on or on the basis of the decisions, referred to hereinbefore, and  also an opinion rendered by a former judge of this Court held that such an  arbitration agreement is valid in law.  In terms of Section 16 of the 1996 Act,  the arbitrator, keeping in view the fact that the question as regard his  jurisdiction had been raised was bound to decide the same before entering  into the merit of the matter.  Only in the event, it came to the conclusion that  the arbitral tribunal had the requisite jurisdiction, it could have proceeded to  determine  the merit of the matter.  We say so in view of the fact that in the  event an arbitrator was of the opinion that he had no jurisdiction in the  matter, the arbitration clause being invalid in law, Centrotrade could have  preferred an appeal in terms of sub-section (2) of Section 37 of the 1996 Act.  The question as regard lack of inherent jurisdiction on the part of the  arbitrator in view of the second part of the arbitration clause being opposed  to the public policy could have been raised by HCL in terms of Section 34 of  the 1996 Act. Even if it is held that two tier arbitration is permissible, under the  1996 Act it might lead to an incongruity. A two tier arbitration is invalid in  law in the context of the 1996 Act having regard to Section 23 of the  Contract Act as statutory jurisdiction cannot be waived by contract. It is,  thus, amply clear that the very scheme of the 1996 Act does not contemplate  a two tier arbitration agreement of this nature. Conditions as regard non-existence or invalidity of an arbitration  agreement can, in our opinion, be raised while resisting enforcement of a  foreign award.  Section 4 of the 1996 Act contemplates existence of an  arbitration agreement which would mean a valid arbitration agreement.  If  the arbitration agreement is void and of no effect, it is non est in the eye of  law and, thus, cannot be enforced.  An arbitrator derives its jurisdiction from  a reference which would mean a dispute and difference to be adjudicated  upon in pursuance of or in furtherance of a valid arbitration agreement.  It is  not in dispute that the parties agreed that the Indian law shall apply.  The  validity or legality of a contract, thus, must be judged on the touch-stone of  Section 23 of the Indian Contract Act.  If a contract is opposed to a public  policy, the same is void and of no effect.  

CONCLUSION :         It is doubtful whether the decisions of the Calcutta, Bombay and  Madras High Court could have been held to be valid if a situation of the  present nature had arisen therein, namely, both the 1940 and 1961 Acts are  applicable in relation to two different awards made at two different point of

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time.  The said decisions, therefore, might have been held to be good only   in terms of the provisions of the 1940 Act or the 1961 Act but the ratio  thereof cannot be extended to the cases falling under both the parts of the  1996 Act.   

       To bring clarity in the matter, we may notice the dichotomy arising  herein.  If the first award was to be enforced (although no occasion arose  therefor), it could have been done only in terms of Part I of the Act.  Despite  invocation of second part of the arbitration agreement, it would not cease to  be a decree in terms of Section 36 of the Act unless the operation thereof  was directed to be stayed.   In other words, the first award of the arbitral  tribunal, on the expiry of the period specified for challenging the award,  became a decree  despite invocation of the second part thereof.  It is difficult  to comprehend that despite a part of the award becoming a decree of the  court, the same would not be binding upon the arbitral tribunal.  Section 34  of the 1996 Act provides for setting aside a domestic Indian award.  It unlike   the English Arbitration Act does not permit the parties to limit or avoid the  operation of the statutory provisions.   

       Furthermore, the grounds for questioning a domestic award and a  foreign award are different.  In the context of the 1996 Act, an arbitration  agreement which would otherwise be contrary to the provisions of the laws  governing the contract between the parties would be void being opposed to  public policy.                   The High Court’s judgment, therefore, in my considered view, cannot  be sustained.

It is, thus, not necessary for us to advert to other questions raised at  the Bar.  Although we do not agree with the reasons assigned by the High  Court, but we uphold the conclusion thereof on different grounds.  

       For the reasons aforementioned, Civil Appeal arising out of SLP  (Civil) No.18611 of 2004 filed by M/s Centrotrade Minerals and Metal Inc.,  is dismissed and Civil Appeal arising out of SLP (Civil) No.21340 of 2005  preferred by Hindustan Copper Ltd. is allowed.  In the peculiar facts and  circumstances of the case, the parties shall pay and bear their own costs.