IN THE SUPREME COURT OF INDIA

ORDINARY ORIGINAL CIVIL JURISDICTION

ARBITRATION APPLICATION No.16 of 2006

M/S. Indtel Technical Services  Pvt.Ltd. ...Appellant

Vs.

W.S. Atkins Rail Ltd.       ...Respondents

O R D E R  

1. By  a  Memorandum  of  Understanding,  hereinafter

referred to as “the Memorandum”, entered into

between the appellant and the respondent on 11th

June, 2002, the parties agreed to collaborate on

an  exclusive  basis  for  jointly  preparing  and

submitting their tender for work associated with

the  designing,  manufacturing,  supply,

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installation,  test  and  commissioning  contract

for the Indian Railways Crashworthiness Project.

Pursuant  thereto  the  parties  jointly  prepared

and  submitted  a  tender  signed  by  both  the

parties  on  30.9.2002  in  response  to  a  bid

invitation  by  RITES  Limited,  a  Public  Sector

Undertaking  of  the  Ministry  of  Railways,  on

30.9.2002.

2. After submission of such bid the parties were

invited  to  call  upon  the  respondent  on

29.10.2002  for  contract  negotiation  in  India,

but without any valid or justifiable reason the

respondent  terminated  the  Memorandum  on

12.11.2002  and  on  15.11.2002  unilaterally

withdrew  the  joint  bid  submitted  to  RITES

without  any  reference  to  the  applicant.

According to the applicant, some of the other

terms  of  the  Memorandum  dated  11.6.2002  were

also breached by the respondent which impelled

the  applicant  to  address  a  letter  to  the

respondent  on  23.6.2003  calling  upon  it  to

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explain the various defaults committed by it. A

request was also made to the respondent to enter

into a dialogue to work out the fair level of

compensation  for  the  losses  suffered  by  the

applicant  on  account  of  such  breach.  The

allegations contained in the letter were denied

by the respondent by its reply dated 20.8.2003.

Several  letters  were  thereafter  exchanged

between  the  parties  culminating  in  a  legal

notice being sent on behalf of the applicant to

the respondent to compensate the applicant for

the  losses  incurred  by  it  on  account  of  the

unlawful acts of the respondent. The response of

the respondent to the legal notice was one of

denial  and  assertion  that  the  respondent  had

acted fairly and properly in the matter.

3. Since  all  attempts  made  by  the  applicant,

including resolution of the dispute through an

alternate  dispute  resolution  process  and

mediation, proved to be abortive, the applicant

ultimately filed the present application for the

appointment of a sole Arbitrator under Section

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11(9)  of  the  Arbitration  Act,  1996,  as  per

clause 13(2) of the Memorandum of Understanding

dated 11th June, 2002.  Inasmuch as, one facet of

the  dispute  between  the  parties  involves  the

wording of the said clause of the Agreement, the

same is reproduced hereinbelow for the sake of

reference:

“CLAUSE 13 – SETTLEMENT OF DISPUTES 13.1.  This  Agreement,  its construction,  validity  and performance shall be governed by and constructed  in  accordance  with  the laws of England and Wales;

13.2  Subject  to  Clause  13.3  all disputes  or differences  arising out of,  or  in  connection  with,  this Agreement  which  cannot  be  settled amicably  by  the  Parties  shall  be referred to adjudication;

13.3  If  any  dispute  or  difference under  this  Agreement  touches  or concerns  any  dispute  or  difference under  either  of  the  Sub  Contract Agreements,  then  the  Parties  agree that  such  dispute  or  difference hereunder  will  be  referred  to  the adjudicator or the courts as the case may  be  appointed  to  decide  the dispute  or  difference  under  the relevant  Sub Contract  Agreement and the Parties hereto agree to abide by

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such  decision  as  if  it  were  a decision under this Agreement.”

4. On  behalf of the appellant company,  Mr. S.C.

Gupta, learned advocate, submitted that although

in the Memorandum the law which was to apply to

the  construction  and  performance  of  the

agreement had been mentioned, the venue for such

adjudication  or  arbitration  had  not  been

stipulated in the agreement since the choice of

venue has obviously been left to the parties. It

was submitted that primarily two questions were

required to be answered in this matter, namely,:

(i) Whether  clauses  13.2  and  13.3  of  the Memorandum  of  Understanding  can  be construed to be an arbitration agreement; and  

(ii) Whether having regard to clause 13.1 of the  Memorandum  of  Understanding indicating  that  the  construction, validity and performance of the agreement would be governed by and constructed in accordance  with  laws  of  England  and Wales, this Court would have jurisdiction to appoint an Arbitrator under Section 11 of the Arbitration Act, 1996.

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5. It was submitted that whenever the jurisdiction

of the domestic courts is invoked, the courts

have to look to their own laws to see whether

they have jurisdiction to take up such matter.

It was contended that since in the instant case

an application had been made under Section 11 of

the Arbitration and Conciliation Act, 1996, it

is the said law which has to be treated as the

relevant Indian Municipal Law applicable to the

instant case.

6. Mr. Gupta urged that a three-Judge Bench of this

Court  had  in  Bhatia  International  vs.  Bulk

Trading S.A, [2002 (4) SCC 105] held that Part-I

of the Arbitration and Conciliation Act, 1996,

applies  both  to  domestic  and  international

arbitrations, irrespective of whether the seat

of arbitration is in India or not.  It was urged

that  while  the  present  Memorandum  was

undoubtedly  an  International  Commercial

Arbitration, Part-I of the aforesaid Act would

still apply thereto and this Court would have

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jurisdiction to entertain the application made

under Section 11 of the aforesaid Act.

7. It was also urged that, although, the parties

had decided that the law relating to the working

or an understanding of the Agreement was to be

the law of England and Wales, there is nothing

in the Memorandum to warrant a conclusion that

the seat of arbitration is to be outside India

in the Courts of England and Wales or that the

parties had mutually excluded the application of

any of the provisions of Part-I of the aforesaid

Act to the Agreement.  It was also submitted

that by virtue of the Memorandum, the parties

thereto had not ousted the jurisdiction of this

Court  nor  had  any  express  intention  to  that

effect been included in the said Memorandum.

8. Mr. Gupta contended that even with reference to

the  laws  of  England  and  Wales,  which  is  the

proper law governing the Arbitration Agreement,

the  Courts  of  England  and  Wales  do  not  have

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exclusive jurisdiction to appoint an Arbitrator

in  the  instant  dispute  having  regard  to  the

provisions  of  Sections  2(f)  and  2(8)  of  the

Arbitration  and  Conciliation  Act,  1996.

Referring  to  some  of  the  provisions  of  the

(English)  Arbitration  Act,  1996,  and,  in

particular,  Section  2  thereof,  Mr.  Gupta

submitted that some of the sections of the Act

would apply to arbitration proceedings even if

the seat of arbitration is outside England and

Wales or the Northern Islands, or if no seat is

designated  or  determined,  as  in  the  instant

case.  According to Mr. Gupta, even though the

present Arbitration Agreement was to be governed

by the Laws of England and Wales, according to

the choice of the parties to the Memorandum, the

Venue for holding the arbitration did not have

to be situated within the jurisdiction of the

Courts of England and Wales.  Mr. Gupta urged

that an almost identical situation had arisen in

the case of Bhatia International (supra), where

an application made by the respondent therein to

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the  Third  Additional  District  Judge,  Indore,

M.P., was under Section 9 of the Arbitration and

Conciliation  Act,  1996,  for  grant  of  certain

interim  reliefs  to  restrain  the  parties  from

alienating,  transferring  and  creating  third

party rights, disposing of, dealing with and/or

selling  their  business  assets  and  properties

till  the  matter  was  decided  by  the  Court.

Bhatia  International raised a plea as  to the

maintainability  of  the  said  application  which

was dismissed by the learned Additional District

Judge upon holding that the Court at Indore had

jurisdiction to entertain the application filed

by  Bulk  Trading  S.A.  under  Section  9  of  the

above Act and that the same was maintainable.  

9. The  order  of  the  learned  Third  Additional

District Judge was challenged before the M.P.

High  Court,  Indore  Bench,  by   Bhatia

International by way of a writ petition, which

was  also  dismissed  by  the  High  Court.   The

Judgment  and  Orders,  both  of  the  learned

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Additional  District  Judge,  Indore,  and  the

Madhya Pradesh High Court, Indore Bench, were

challenged  before  this  Court  by  Bhatia

International and it was submitted on its behalf

that Part-I of the Arbitration and Conciliation

Act, 1996, applies only to arbitrations where

the place of arbitration is in India, as has

been  clearly  indicated  in  Sub-section  (2)  of

Section 2 of the said Act.  In the said case, it

was also urged on behalf of Bhatia International

that  Section  2(i)(f)  of  the  Arbitration  and

Conciliation Act, 1996, defines ”International

Commercial  Arbitration”  and  that  such

arbitration could take place either in India or

outside India.  The submissions made on behalf

of Bhatia International were accepted by this

Court upon a finding that, although, Section 2

(2)  of  the  Arbitration  and  Conciliation  Act,

1996,  provides  that  Part-I  of  the  Act  would

apply  where  the  place  of  arbitration  is  in

India, it did not provide that Part-I would not

apply where the place of arbitration is not in

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India.  It was also held that it was nowhere

provided that Part-I of the aforesaid Act would

not apply to arbitrations taking place outside

India.   Accordingly,  this  Court  concluded  as

follows :-

“To  conclude,  we  hold  that  the provisions of Part-I would apply to all arbitrations  and  to  all  proceedings relating  thereto.   Where  such arbitration  is  held  in  India  the provisions  of  Part-I  would  compulsory apply  and  parties  are  free  to  deviate only  to  the  extent  permitted  by  the derogable  provisions  of  Part-I.   In cases  of  international  Commercial arbitrations  held  out  of  India provisions of Part-I would apply unless the  parties  by  agreement,  express  or implied,  exclude  all  or  any  of  its provisions.  In that case the laws or rules  chosen  by  the  parties  would prevail.   Any  provision,  in  Part-I, which is contrary to or excluded by that law or rules will not apply.”

10. Mr.  Gupta  submitted  that  all  contracts  which

provide for arbitration and contain a foreign

element may involve three relevant systems of

law,  which  include  the  law  governing  the

substantive  contract  or  the  proper  law  of

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contract, or the law governing the agreement to

arbitrate,  which  is  the  proper  law  of  the

arbitration agreement, or the law governing the

conduct of the arbitration proceedings which is

the curial law.  It was submitted that in the

present case, the parties had mutually chosen

the law of England and Wales to be the proper

law  of  contract  and  it  could,  therefore,  be

contended that the proper law of the arbitration

agreement is also the law of England and Wales.

He, however, urged that there was nothing in the

agreement  to  indicate  that  the  parties  had

agreed  as  to  the  venue  of  arbitration.   He

submitted that the law which was to govern the

conduct of arbitration or the curial law, not

having been indicated by the parties, the same

could be determined only by the Arbitrator.  He

submitted  that  when  the  Arbitrator  to  be

appointed in the instant case, chooses the seat

of arbitration, the law relating thereto will

govern the law of the conduct of the arbitration

proceedings.   Mr. Gupta urged that  the above

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proposition finds full support in the decision

of  this  Court  in  National  Thermal  Power

Corporation vs. Singer Company & Anr. [1992 (3)

SCC  551]  where  in  paragraph  28,  it  has  been

observed  that  questions  relating  to  the

jurisdiction  of  the  Arbitrator  to  decide  a

particular issue relating to the continuance of

an arbitration agreement, its validity, effect

and interpretation are determined exclusively by

the  proper  law  of  the  arbitration  agreement.

The  procedural  power  and  duties  of  the

Arbitrator are regulated in accordance with the

rules chosen by the parties to the extent that

those rules are applicable and sufficient and

are  not  repugnant  to  the  procedural  law  and

practice of the seat of arbitration.  It was

further  observed  that  the  concept  of  party

autonomy in international contracts is respected

by  all  systems  of  law  so  far  as  it  is  not

incompatible with the proper law of the contract

or the mandatory procedural rules of the place

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where the arbitration is agreed to be conducted

or any overriding public policy.

11. It was submitted that since in the instant case

the  seat  of  arbitration  would  have  to  be

determined  by  the  Arbitrator,  once  he  was

appointed, the question as to which law would

govern  the  conduct  of  the  arbitration

proceedings should not be decided at this stage.

12. On behalf of the appellant it was lastly urged

that clauses 13.2 and 13.3 of the Memorandum of

Understanding  clearly  indicates  that  the

intention of the parties to the said Memorandum

of  Understanding  was  to  have  their  disputes

resolved by arbitration although the expression

used  in  the  said  clauses  is  “adjudication”.

According  to  Mr.  Gupta,  use  of  the  said

expression did not detract from the intention of

the parties to have their disputes resolved by

arbitration.  He submitted that the expression

“adjudication” had been defined in various legal

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dictionaries to mean the act of adjudicating;

the  process of trying and determining  a case

judicially; the application of the law to the

facts and an authoritative declaration of the

result.   Learned  counsel  submitted  that  in

Black’s  Law  Dictionary  the  expression

“adjudication”  is  defined  as  being  the  legal

process of resolving of a dispute or the process

of judicially deciding a case. Learned counsel

submitted that the expressions ‘adjudicate’ and

‘adjudge’ have also been defined to mean to rule

upon and award judicially.

13. Mr.  Gupta  urged  that  having  regard  to  the

decision of this Court in Bhatia International

(supra), it is beyond question that Part-I of

the  Arbitration  Act,  1996,  would  also  be

attracted  to  the  instant  case  and  the

application made under Section 11 of the said

Act was, therefore, maintainable.

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14. Mr. Gupta’s submissions that although the proper

law  of  the  arbitration  agreement  had  been

stipulated  in  Clause  13.1  to  be  the  laws  of

England  and  Wales,  such  provision  did  not

automatically  vest  jurisdiction  only  on  the

Courts of England and Wales to deal with and

decide  all  issues  arising  out  of  arbitration

agreement,  was  denied  by  Mr.  Parag  Tripathi,

learned Senior counsel for the respondent. It

was urged that an application under Section 11

of the Arbitration and Conciliation Act, 1996,

is  nothing  but  a  step  in  performance  of  the

arbitration clause and since the performance of

the Memorandum is to be governed by the laws of

England and Wales, according to the choice of

the parties, it is the procedural law of England

and  Wales  which  has  to  be  applied  to  the

performance  of  the  arbitration  agreement  as

well.  Referring to the decision in the National

Thermal  Power  Corporation  case  (supra),  which

had  also  been  referred  to  by  Mr.  Gupta,  Mr.

Tripathi submitted that in the said decision the

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views of jurists such as Dicey, Mustill and Boyd

and Russel had been reiterated in support of the

contention that the overriding principle is that

the  courts  of  the  country,  whose  substantive

laws  govern  the  arbitration  agreement,  are

competent  courts  in  respect  of  all  matters

arising under the arbitration agreement, and the

jurisdiction exercised by the courts of the seat

of  arbitration  is  merely  concurrent  and  not

exclusive and strictly limited to the matter of

procedure.  

15. Mr. Tripathy submitted that the decision in the

aforesaid  case  supports  the  proposition  that

when the parties to the contract, do not express

any choice with regard to the law governing the

contract  or  the  arbitration  agreement  in

particular, a presumption has to be drawn that

the parties intended that the proper law of the

contract  as  well  as  the  law  governing  the

arbitration agreement would be the same as the

law  of  the  country  which  is  the  seat  of

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arbitration.   But  when  the  parties  expressly

choose the proper law of the contract, as in the

instant  case,  in  the  absence  of  a  clear

intention such law must govern the arbitration

agreement  also  though  it  is  collateral  and

ancillary to the main contract.

16. Mr. Tripathi urged that similarly where the seat

of arbitration is indicated, then, unless there

is an indication to the contrary, it will be

deemed  that  the  place  where  the  proper  law

governing  the  arbitration  proceedings  is  in

force is the place chosen by the parties  to be

the  seat  of  arbitration  as  well.   Learned

counsel referred to the decision of the Court of

Appeal  in  Naviera  Amazonica  Peruana  S.A.  vs.

Compania  internacional  De  Seguros  Del  Peru,

reported in Lloyd’s Law Reports [1988 (Vol.I)

116),  wherein  it  was  held  that  while

interpreting an arbitration clause the use of

the  phrase  “arbitration  agreeing  to  the

conditions  of laws of London” means  that the

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arbitration was to be held in London, not by the

implication  of  some  additional  term,  but  by

giving to those words their ordinary commercial

meaning.

17. Mr. Tripathi submitted that in this case also

since the parties had stipulated the law which

was  to  govern  the  Memorandum,  but  had  not

indicated the seat of arbitration, in keeping

with  the  consistent  views  expressed  by  the

Courts and jurists, it must be held that the

seat  of  arbitration  must  necessarily  be  the

Courts  of  England  and  Wales.   Mr.  Tripathy

submitted that consequently this court has no

jurisdiction  to  entertain  the  applicant’s

petition under Section 11(9) of the Arbitration

and  Conciliation Act, 1996, and the  same was

liable to be dismissed.

18. Mr. Tripathy also urged that the expression “may

be referred to arbitration” or “can be referred

to arbitration” have consistently been held by

the  Indian  Courts  to  be  antithetical  to  the

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concept of arbitration.  Reference was made to

various  decisions  on  this  count  as  well.

Regarding use of the expression “adjudication”,

Mr.  Tripathy  submitted  that  a  final  decision

arrived in such adjudication proceedings would

not make it a valid arbitration agreement.  He

urged that unless it is the clear intention of

the parties that arbitration is to be the only

forum  for  adjudication  of  disputes,  the

requirement of a valid arbitration clause is not

fulfilled.

19. In  support  of  his  aforesaid  submission,  Mr.

Tripathy referred to decisions of various High

Courts and also the decision of this Court in

Jagdish Chander v. Ramesh Chander, [2007 (5) SCC

719], wherein while dealing with the provisions

and  scope  of  Sections  7,  8  and  11  of  the

Arbitration  and  Conciliation  Act,  1996,  with

reference to Section 89 of the Code of Civil

Procedure, this Court held that the existence of

an  arbitration  agreement,  as  defined  under

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Section  7  of  the  above  Act,  is  a  condition

precedent for exercise of power for appointment

of  the  Arbitrator/Arbitral  Tribunal,  under

Section 11 of the aforesaid Act.  Mr. Tripathy

pointed  out  that  while  arriving  at  such

conclusion, this Court laid down certain tests

to  decide  as  to  what  would  constitute  an

arbitration  agreement,  namely,  (i)  that  the

intention  of  the  parties  to  enter  into  an

arbitration agreement would have to be gathered

from the terms of the Agreement;   (ii) that

even if the words “arbitration” and “arbitrator”

are not used in a  clause relating to settlement

of  disputes with reference to the  process of

such agreement or with reference to the private

tribunal  which  is  to  adjudicate  upon  the

disputes,  it does not detract from the clause

being  an arbitration agreement if it  has the

attributes  and  elements  of  an  arbitration

agreement.   Conversely,  the  mere  use  of  the

words ‘arbitration’ or ‘arbitrator” in a clause

will not make it an arbitration agreement, if it

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requires  or  contemplates  a  further  or  fresh

consent  of  the  parties  for  reference  to

arbitration.

20. Mr.Tripathy  submitted  that  any  ambiguity  and

vagueness in the arbitration clause would render

the  same  invalid  as  had  been  held  by  the

Calcutta High Court in (i) ITC Classic Finance

Ltd. vs. Grapco Mining and Co. Ltd, [AIR 1997

Cal.  397]  and  (ii)  Teamco  Private  Ltd.  vs.

T.M.S. Mani, [AIR 1967 Cal. 168].  Mr. Tripathy

urged  that  both  clauses  13.2  and  13.3  are

somewhat vague on the question of reference and

the finality of the decision in the adjudication

proceedings.

21. It  was  contended  that  the  expressions

“construction, validity and performance” used in

clause  13.3  of  the  Memorandum  is  a  decisive

indication that the intention of the parties was

to give exclusive jurisdiction to the procedural

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law of England and Wales even in respect of the

appointment of an Arbitrator.

22. In  concluding,  Mr.  Tripathy  attempted  to

distinguish  the  decision  in  Bhatia

International’s case (supra) by submitting that

the law laid down in the said decision was not

attracted to the facts of the instant case as in

the said decision it had only been held that

Part-I of the Arbitration and Conciliation Act,

1996,  would  apply  to  International  Commercial

Arbitrations  unless  there  was  a  specific

agreement  either  expressed  or  implied  to  the

contrary.  Mr. Tripathy contended that since the

parties had clearly expressed their intention in

clause 13(i) of the Memorandum of Understanding

that the law of England and Wales was to be the

proper law in respect of the Memorandum, it must

necessarily follow that it was the intention of

the parties that the arbitral proceedings should

also  be  subject  to  the  jurisdiction  of  the

Courts of England and Wales.

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23. It  appears  that  after  the  conclusion  of  the

hearing of this case, another decision of the

House of Lords in Lesotho Highlands Development

Authority  vs.  Inpregilo  SpA,  [2005  UKHL  43],

came to the notice of the respondent where a

reference  to  the  juridical  seat  of  the

arbitration had been made and it was observed

that the determination of the juridical seat of

arbitration  as England is the gateway  to the

powers  of  the  Tribunal  spelt  out  in  many

provisions of the English Arbitration Act, 1996.

24. Although, the matter has been argued at great

length and Mr. Tripathy has tried to establish

that  the  decision  of  this  Court  in  Bhatia

International’s case (supra) is not relevant for

a decision in this case, I am unable to accept

such contention in the facts and circumstances

of the present case.  It is no doubt true that

it  is  fairly  well-settled  that  when  an

arbitration agreement is silent as to the law

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and procedure to be followed in implementing the

arbitration  agreement,  the  law  governing  the

said agreement would ordinarily be the same as

the law governing the contract itself.   

The decisions cited by Mr. Tripathy and the views

of the jurists referred to in the National Thermal

Power  Corporation  case  (supra)  support  such  a

proposition.   What,  however,  distinguishes  the

various decisions and views of the authorities in

this  case  is  the  fact  that  in  the  Bhatia

International case (supra) this court laid down the

proposition that notwithstanding the provisions of

Section  2(2)  of  the  Arbitration  and  Conciliation

`Act, 1996, indicating that Part-I of the said Act

would apply where the place of arbitration is in

India, even in respect of International Commercial

agreements,  which  are  to  be  governed  by  laws  of

another country, the parties would be entitled to

invoke the provisions of Part-I of the aforesaid Act

and consequently the application made under Section

11 thereof would be maintainable.

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25. The decision in the Bhatia International case

(supra) has been rendered by a Bench of Three

Judges and governs the scope of the application

under  consideration,  as  it  clearly  lays  down

that the provisions of Part-I of the Arbitration

and  Conciliation  Act,  1996,  would  be  equally

applicable  to  International  Commercial

arbitrations held outside India, unless any of

the said provisions are excluded by agreement

between the parties expressly or by implication,

which is not so in the instant case.

26. Furthermore, from the wording of clause 13.2 and

clause 13.3 I am convinced, for the purpose of

this  application,  that  the  parties  to  the

Memorandum  intended  to  have  their  disputes

resolved by arbitration and in the facts of this

case the petition has to be allowed.    

27. Accordingly,  Justice  B.N.  Srikrishna,  is

appointed as sole arbitrator to arbitrate upon

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the  disputes  which  have  arisen  betweens  the

parties hereto as set out in sub-paragraphs (a)

to  (h)  of  paragraph  19  of  the  present

application.   The  sole  Arbitrator  will  be

entitled  to  decide  upon  the  procedure  to  be

adopted  in  the  arbitral  proceedings,  the

sittings of the arbitral proceedings and to also

settle his fees in respect thereof.  The sole

Arbitrator  shall  make  positive  efforts  to

complete  the  arbitration  proceedings  and  pass

his award with expedition.

………………………………J. (ALTAMAS KABIR)

New Delhi Dated: 25.08.2008

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