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CASE NO.: Arbitration Petition  3 of 2005

PETITIONER: RITE APPROACH GROUP LTD.                 

RESPONDENT: M/S ROSOBORONEXPORT                      

DATE OF JUDGMENT: 16/11/2005

BENCH: A.K. Mathur

JUDGMENT: J U D G M E N T

A.K. MATHUR, J.

This arbitration petition was filed before this Court under  Section 11(6) of the Arbitration and Conciliation Act, 1996 for  appointment of the Arbitrator.  Hon’ble the Chief Justice of  India has  designated me to nominate the Arbitrator  for disposal of dispute.

Notice of this petition was served on the parties and they were  heard.

The petitioner is a company incorporated under the relevant  laws of the Republic of Singapore having its registered office at 1101,  Continental Tower, Tamasek Avenue, Singapore and represented in  India by Austrian Trade Commission, 80, Jor Bagh, New Delhi- 110003.  The petitioner carries on business, inter alia, as an Agent of  various foreign companies for negotiating and concluding contracts  on their behalf.

Federal State Unitary Enterprise Russian Technologies,  hereinafter referred to as "Russian Technologies", was a Russian  public sector company incorporated under the name and style of  "FSUE Promexport" and the said "FSUE Promexport" subsequently  merged with the Repondent ROSOBORONEXPORT.  Consequently,  all the contractual rights and liabilities of M/s Russian Technologies  vested in ROSOBORONEXPORT, the respondent herein.  All the  three entities have been/are owned by the Government of Russia.   The registered office of M/s ROSOBORONEXPORT is 27/3,  Stromynika STR Moscow, 107076.

That between October 1999 and April 2000 M/s Russian  Technologies approached the petitioner for procuring orders in India  for supply of helicopters to Border Security Force, Ministry of Home  Affairs, Government of India.  The petitioner agreed to act as the  Agent of the said Russian Enterprise, the predecessor-in-interest of  the respondent herein for procuring contracts in India for supply of  helicopters for the BSF, Ministry of Home Affairs, Government of  India.  The Border Security Force, Ministry of Home Affairs, was  approached and the Indian Authorities were persuaded to select the  helicopters manufactured by M/s Kazan Helicopters Ltd. which was to  be supplied by M/s Russian Technologies as acceptable to the  Border Security Force.  The petitioner through its representatives in  India, also intimated to the respondent of the specific requirements of  the Boarder Security Force of the Ministry of Home Affairs,  Government of India so that their specific requirements could be met  by the respondent.

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Thereafter number of meetings were held and ultimately on 1st  March, 2000 pursuant to the petitioner’s effort a Memorandum of  Understanding was arrived at between the respondent and the  Border Security Force of the Ministry of Home Affairs, Government of  India whereby the modalities for the supply of helicopters were  arrived at,  after lot of correspondence and discussion.

Subsequently, in recognition of the services rendered by the  petitioner to the respondent, a written contract was entered into by  and between the parties on 14th April, 2000 whereunder M/s  Russian  Technologies was described as the "Principal" and the petitioner was  described as the "Agent".

Under the said agreement, Principal authorized the Agent i.e.  petitioner to take the functions for organizing and conclusion of  contracts between the Principal and the Border Security Force of the  Ministry of Home Affairs, Government of India.  Originally, the agency  was for securing order for four helicopters which was subsequently  enhanced to six helicopters.  As per the agency agreement, the  Agent-petitioner was given an obligation to facilitate signing of the  contract between the Russian Technologies, the Principal and the  Border Security Force of the Ministry of Home Affairs, Government of  India, the customer.  The petitioner was to render assistance to  Russian Technologies in making negotiations with the Border  Security Force of the Ministry of Home Affairs, Government of India to  facilitate solving of any problems and other concerning preparations  and conclusions of the contract and to render assistance to Russian  Technologies in making negotiations with the Border Security Force  of the Ministry of Home Affairs, Government of India on the  specifications of supply of armaments and other goods for the  helicopters.

M/s Russian Technologies, respondent was also to perform  certain obligations i.e. to supply the Agent in time with necessary  information and documentation in accordance with the Agent’s  request; to inform the Agent about all the changes concerning the  conclusion and fulfilment of the contract signed under the said  agency agreement; to pay to the Agent its commission from the  amount received from Border Security Force of the Ministry of Home  Affairs, Government of India for the goods delivered or services  rendered to it with the petitioner’s assistance.  The quantum of  commission under the said agreement was fixed at 16% of the  payments which would be made by the Government of India to M/s  Russian Technologies.   

The petitioner acted as an Agent on behalf of the Russian  Technologies and thereafter on behalf of the respondent and  facilitated execution of a contract for supply of six helicopters to  Border Security Force of the Ministry of Home Affairs, Government of  India against payment of a total sum of Rs.180 crores of which a  Memorandum of Understanding was signed in March 2000 and a  letter of credit was opened on June, 2003.

It is alleged that because of the petitioner’s efforts, the contract  for supply of six helicopters by M/s Russian Technologies, which  subsequently merged with M/s ROSOBORONEXPORT became  possible.  The Petitioner came to know that the helicopters would be  supplied by M/s ROSOBORONEXPORT to the  Government of India  by the end of 2003.  Therefore petitioner reminded the respondent  about their obligation to pay 16% commission to the petitioner.  But  unfortunately M/s ROSOBORONEXPORT denied the obligation to  pay any commission to the petitioner.  The stand of the respondent  was that one of the petitioner’s representatives in India, Dr. Eric  Gutman, an Austrian citizen, who had rendered service to M/s

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Russian Technologies for procuring this contract, had also claimed  for the commission and on his behalf the Austrian Trade  Commissioner in India had approached the respondent, M/s Kazan  Helicopters.  The contention of the petitioner was that once the  helicopters are supplied by respondent to the Government of India,  and the Government of India makes the payment of the price of these  helicopters to the Russian party, the petitioner would be left with no  remedy and therefore petitioner prayed that an injunction order may  be issued and the matter may be referred to Arbitrator.  The petitioner  has also referred to arbitration clause in Article 6 of Agency  Agreement dated 14.4.2000 which reads as under:

"Article 6

Solving of Disputes and Differences

6.1. If any disputes and/or differences between the  PRINCIPAL and the AGENT concerning the present  agreement a rise, both PARTIES will try to solve it by  negotiations.

6.2 If differences and/or disputes could not be solved by  both PARTIES through negotiations, they will be  submitted to Arbitration Court under the Chamber of  Commerce and Trade of the Russian Federation.

The decision of the Arbitration Court will be final and  obligatory for both PARTIES."

       Therefore in this background petitioner filed this petition under  Section 11(6) of the Arbitration Act, 1996 and sought prayer for  appointment of arbitrator in India under the Indian Arbitration Act as  according to the petitioner, it apprehends that it is  not likely to get  justice in Russia.  A notice was also given but without any result,  hence the petitioner  approached this Court.  Before this, petitioner  filed an application under Section 9 of the Arbitration and Conciliation  Act, 1996 before the Delhi High Court and the Delhi High Court  passed interim order and directed Border Security Force of the  Ministry of Home Affairs, Government of India to hold back 16% out  of the amount payable to the respondent company in regard to the  supply of the helicopters to Government of India in terms of the  contract entered into in June, 2003.

       Thereafter that matter came up before the Delhi High Court on  12.1.2004 and order dated 12.12.2003 was modified.

Thereafter  on 17.03.2004 the claimant  invoked arbitration  clause in view of the differences and disputes existing between the  parties and called upon the respondent to act as per the agreement  within 30 days from the receipt of the notice failing which the claimant  would be constrained to initiate appropriate legal action against the  respondent. Thereafter on completion of pleadings of the parties on  25.05.2005 learned Single Judge of Delhi High Court after hearing  parties dismissed the petition.

Thereafter petitioner filed an appeal before the Division Bench  of the Delhi High Court and the Division Bench issued  notice in the  matter on 27.5.2004 and the said appeal is pending adjudication  before the Division Bench.

In this background petitioner approached this Court by filing  petition under Section 11(6) of the Arbitration and Conciliation Act,  1996,  and that is how the matter has come before me on designation  by the Hon’ble  Chief Justice of India.

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The respondent  opposed the petition by  filing a detailed reply  and one of the principal submissions of the learned counsel for the  respondent was that Clause 6.2 of  the Agency Agreement dated  14.4.2000 provides that in case of dispute between the parties, the  parties will resort to arbitration for resolution of their dispute and they  will  submit to Arbitration Court under the Chamber of Commerce and  Trade of the Russian Federation.  Therefore this Court has no  jurisdiction to entertain this petition.

The matter got adjourned for several times for one reason or  the other for filing of the reply, ultimately the arguments were heard  and order reserved.

It may be relevant to mention here that since the matter was  pending before the Seven Judge Bench with regard to the  interpretation of certain provisions of the Arbitration & Conciliation  Act, 1996, therefore arguments were heard and order was reserved  awaiting the decision of the Seven Judge Bench.  Now recently on  26.10.2005 the Seven Judge Bench has delivered its decision in Civil  Appeal No. 4168 of 2003 (M/s S.B.P. & Co. vs M/s Patel  Engineering Ltd. & Anr.) and the earlier decision rendered in the  case of Konkan Railway Corporation Ltd. And another Vs Rani  Construction Pvt. Ltd. [(2002) 2 SCC 388] has been reversed and  now it has been held that  the order passed by the Judge on  designation  by the Hon’ble Chief Justice,  the order shall be judicial  order and not administrative order as was held in Konkan Railway  case (supra).  Therefore now legal position has been crystallized that  the order passed by the Judge on nomination of the Hon’ble Chief  Justice of India under Section 11 shall be judicial order not amenable  to any appeal.  The legal position has been summarized as under in  above decision M/s S.B.P. & Co.(Supra)  :- "46.    We, therefore, sum up our conclusions as  follows:

i)      The power exercised by the Chief Justice of  the High Court or the Chief Justice of India  under Section 11(6) of the Act is not an  administrative power.  It is a judicial power.

ii)     The power under Section 11(6)  of the Act, in  its entirety, could be delegated by the Chief  Justice of the High Court only to another judge  of that court and by the Chief Justice of India  to another judge of the Supreme Court.

iii)    In case of designation of a judge of the High  Court or of the Supreme Court, the power that  is exercised by the designated judge would be  that of the Chief Justice as conferred by the  statute.

iv)     The Chief Justice  or the designated judge will  have the right to decide the preliminary  aspects as indicated in the earlier part of this  judgment.  These will be, his own jurisdiction,  to entertain the request, the existence of a  valid arbitration agreement,  the existence or  otherwise of a live claim, the  existence of the  condition for the exercise of his power and on  the qualifications of the arbitrator or  arbitrators.  The Chief Justice or the judge  designated would be entitled to seek the  opinion of an institution in the matter of  nominating an arbitrator qualified in terms of

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Section 11(8) of the Act if the need arises but  the order appointing the arbitrator could only  be that of the Chief Justice or the judge  designate.

v)      Designation of a district judge as the authority  under Section 11(6) of the Act by the Chief  Justice of the High Court is not warranted on  the scheme of the Act.

vi)     Once the matter reaches the arbitral tribunal  or the sole arbitrator, the High Court would not  interfere  with orders passed by the arbitrator  or the arbitral tribunal during the  course of the  arbitration proceedings and the parties could  approach the court only in terms  of Section  37 of the Act or in terms of  Section 34 of the  Act.

vii)    Since an order passed by the Chief Justice of  the High Court or by the designated judge of  that court is a judicial order, an appeal will lie  against that order only under Article 136 of the  Constitution of India  to the Supreme Court. viii)   There can be no appeal against an order of  the Chief Justice of India or  a judge of the  Supreme Court designated by him while  entertaining an application under Section  11(6) of the Act.

ix)     In a case where an arbitral tribunal has been  constituted by the parties without having  recourse to Section 11(6) of the Act,  the  arbitral tribunal will have the jurisdiction to  decide all matters as contemplated by Section  16  of the Act.

x)      Since all were guided by  the decision of this  Court in Konkan Railway Corpn. Lts. & Anr.  Vs. Rani Construction Pvt. Ltd.  [(2002) 2  SCC 388)]  and orders under Section 11(6) of  the Act have been made based on the  position adopted in that decision,  we clarify  that appointments of arbitrators or arbitral  tribunals thus far made,  are to be treated as  valid,  all objections being left to be decided  under Section 16  of the Act.  As and from this  date, the position as adopted in this judgment  will govern even pending applications under  Section 11(6)  of the Act.

xi)     Where District Judges had been designated  by the   Chief Justice of the  High Court under  Section 11(6) of the Act,  the appointment  orders thus far made by them will be treated  as valid;  but applications if any pending  before them as on this date will stand  transferred,  to be dealt with by the Chief   Justice of the concerned High Court or a  Judge of that court designated by the Chief  Justice.

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xii)    The decision in Konkan Railway Corpn. Ltd.  & Anr.  Vs.  Rani  Construction Pvt. Ltd.       [ (2002) 8 SCC 388] is overruled."

In the present case, as per the Agency Agreement dated  14.4.2000, Clause 6.2 categorically states that if any dispute arises  between the parties then the same shall be submitted to Arbitration  Court under the Chamber of Commerce and Trade of the Russian  Federation.  Therefore there is a specific clause mentioned in the  Agency Agreement as to which court will have jurisdiction to try and  dispose of the matter.

       In view of the specific provision specifying the  jurisdiction of the  Court to decide the matter,  this Court cannot assume the jurisdiction.   Whenever there is a specific clause conferring jurisdiction on  particular Court to decide the matter then it automatically ousts the  jurisdiction of other Court. In this agreement, the jurisdiction has been  conferred on the  Chamber of Commerce and Trade of the Russian  Federation as the authority  before whom the dispute shall be  resolved.   In view of the specific arbitration clause conferring power  on the Chamber of Commerce and Trade of the Russian Federation,  it is that authority which alone will  arbitrate the matter and the finding  of   that arbitral  tribunal shall be final and obligatory for both the  parties.            Thus, in this view of the matter, I am of the opinion that this  Court has no jurisdiction and the Chamber of Commerce and Trade  of Russian Federation alone has  jurisdiction to act as an arbitrator  and resolve the dispute.  Hence this application is rejected.