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PETITIONER: TRANSOCEAN SHIPPING AGENCY P.LTD.

       Vs.

RESPONDENT: BLACK SEA SHIPPING & ORS.

DATE OF JUDGMENT:       14/01/1998

BENCH: SUJATA V. MANOHAR, D.P. WADHWA

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T Mrs. Sujata V. Manohar, J.      Leave granted.      Application for impleadment allowed.      This is  an appeal  from a  judgment and  decree of the High  Court  dated  9th  of  October,  1996  in  Arbitration Petition No.22  of   1996 whereby the High Court has allowed the petition  and passed   a decree, under the provisions of the Foreign  Awards (Recognition and Enforcement) Act, 1961, in terms  of the  foreign award  dated 3rd of October, 1995, given  by   the  second   respondent-arbitrator  at  Odessa, Ukraine.      In 1983 the 1st respondent-Black Sea Shipping Co. was a division of  M/s Sovefracht  a wholly  owned company  of the then Government of the USSR. Under an agreement date 26.8.83 the 1st respondent appointed, inter alia, the appellants-M/s Transocean Shipping Agency (P) Ltd. as their shipping agents for the  1st respondent’s  business of shipping and carriage of goods to and from various Indian ports. The engagement of the appellants  by the 1st respondent was done under various agreements, the  last of  which was  dated 26.8.1983.  Under Clause 5.30  of the  agreement  of  26.8.1983  all  payments between the  owners i.e.  the 1st  respondent and the agents were to  be effected  in accordance  with  the  terms  of  a payment  agreement  existing  between  the  USSR  and  India otherwise than in free convertible currency. All remittances from the  appellants to  the 1st respondent were, therefore, to be made in accordance with rupee-rouble payment agreement between the USSR and India.      Clause 7  of the  agreement of  26.8.1983  contains  an arbitration clause  requiring the  disputes, if  not settled amicable, to be referred to the Maritime Arbitration Commission of  the USSR  with the  Chamber of  Commerce  and Industry in  Moscow for  arbitration in  accordance with the Rules and Procedure of this Commission.      In or  around December,  1991, dissolution  of the USSR took place,  Several Socialist  Republic which  had formed a part of  the USSR  became independent  Sovereign State.  The State of  Ukraine also  thus became an independent Sovereign State. The  1st respondent company became a company owned by

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the State  of Ukraine.  In January, 1992 the Reserve Bank of India issued  a directive  the at  henceforth all  trade and non-trade transactions  with the  State of  Ukraine and  the other Soviet  countries would  be effected  only  in  freely convertible currencies.  All  disbursements  in  respect  of Ukrainian  vessels  and  collection  of  rates  will  be  in convertible rupees  in dollar terms only. At this time a sum of  approximately  Rs.  28.11  crores  was  lying  with  the appellants to  the credit  of the 1st respondent in the form on non-convertible  rupees. Because  of the directive issued by the  Reserve Bank of India, this amount could not be used by the  appellants to  meet disbursements  in respect of the vessels  of   the  1st   respondent.  The   1st  respondent, therefore, decided  to utilise  this  non-convertible  rupee amount for  purchasing different  items and commodities like tea, containers,  garments etc, in India after obtaining the requisite permission from the Reserve Bank of India. In this manner, a  sum of  Rs. 21.7  crores was  utilised by the 1st respondent and  was  disbursed  by  the  appellants  on  the instructions of  the  1st  respondent  after  obtaining  the requisite Reserve Bank of India’s permission.      On the  18th of  May, 1992 a fresh agency agreement was executed between the appellants and the 1st respondent.  The 1st respondent  appointed the  appellants as their agents in respect of  their ships  coming to  and going  from,  Indian ports on  the terms and conditions stipulated therein. Under Clause 5.2  of the  agreement dealing  with freight.  It was provided that the freight amounts accepted by the shipper or receivers as  well as other amounts relevant to freight were to be remitted to the owners in accordance with the attached Financial Addendum  to the  agreement. Clause  5.21 required all payment  to be  effected in  free convertible  currency, unless otherwise stipulated.  The first addendum relating to financial obligations  provided in Clause 5 that any balance due to the owners should be paid by the agents in accordance with Clause  5.2 on  owner’s instructions.  Clause 7 of this agreement   contained an  arbitration clause. It provided as follows :-      "Clause 7.1:  All disputes  between      owners and  Agents which  may arise      in connection  with the  fulfilment      of  their   Agreement  are   to  be      settled amicable, but if impossible      then to  be referred to Arbitration      of country  where  the  owners  are      registered."      In January,  1995 the appellants had with them a sum of Rs. 6,41,66,410-60  as  non-convertible  balance  amount  of freight payable  by them  to the  1st  respondent.  The  1st respondent directed the appellants to pay this amount to M/s Akshay Exports,  Calcutta  in  connection  with  a  purchase contract for  coffee entered into between the 1st respondent and M/s  Akshay Exports.  Permission of  the Reserve Bank of India was  sought for  this payment.  As the  permission was declined, the  appellants, could  not pay this amount to M/s Akshay  Export.   Thereafter  disputed   arose  between  the appellants  and  the  1st  respondent.  The  1st  respondent claimed substantial  amounts from  the appellants pertaining to various payments made by them in India as shipping agents of the appellants.      The 1st  respondent invoked  the arbitration  clause in the agreement of 18th of May. 1992 in respect of their claim for Rs.  6,41,66,410.60. On  11th August, 1995 by Government Order issued  by  the  Ministry  of  Transport  of  Ukraine, Department of  Merchant  Marine  and  River  Transport,  the

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second respondent  was appointed  as sole  arbitrator in the matter of  disputes between  the State  owned 1st respondent and their  agents in  India-  the  appellants,  as  well  as another  agent   in  Madras,   to  settle   the  issues   by arbitration. The date of arbitration was fixed in respect of the appellants as 3rd of October, 1995 at Odessa. The second respondent thereafter  sent a letter to the appellants dated 28th August,  1995 informing them of her appointment as sole arbitrator and  directing the  1st respondent  to  file  the statement of  claim on or before 11th of September, 1995 and directing the  appellants to  file their objections/reply on or before  26th of  September, 1995.  She also  notified the parties that  meeting would  be held by her in her office at Odessa on  3rd of  October, 1995.  The  appellants  wrote  a letter objecting  to the  appointment of  the arbitrator and raised various  contentions therein.  They, however, did not file a  any objections  or reply  to the  statement of claim filed  by  the  first  respondent  claiming  a  sum  of  Rs. 6,41,66,410.60; nor  did they  appear before the arbitrator. As a  result the  arbitrator made  and published  her  award dated  3rd   of  October,  1995  awarding  the  sum  of  Rs. 6,41,66,410/- to  the 1st  respondent together with interest and costs.  The 1st respondent has thereafter filed petition No. 22  of 1996  in the  High Court  for enforcement  of the foreign award. Under the impugned judgment a decree has been passed in  terms of  the  award  under  the  Foreign  Awards (Recognition and Enforcement) Act, 1961.      The appellants  contend that  the award  in the present case is  not a  foreign award as defined in Section 2 of the Foreign Awards  (Recognition and Enforcement) Act, 1961. The relevant  portion  of  Section  2  of  the    Foreign  Award (Recognition and Enforcement) Act, 1961 is as follows:-      "2.  In  this   Act,   unless   the      context     otherwise     requires,      "foreign award"  means an  award of      differences between persons arising      out of legal relationships, whether      contractual or  not, considered  as      commercial under  the law  in force      in India, made on or after the 11th      day of October, 1960-      (a)................................      .      (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."      The Convention  referred to  in  this  section  is  the Convention on  the Recognition  and Enforcement  of  Foreign Awards made at New York on 10th of June, 1058 to which India is a signatory. The USSR, as it then was, acceded to the New York   Convention   on   24.8.1960.   Under   the   relevant constitutional provision  pertaining to the USSR, two of its republics Ukraine  and Byelorussia had a right to enter into separate treaty  arrangements. Accordingly,  Ukraine acceded to the New York Convention on 10.10.1960.      The Foreign  Awards (Recognition  and Enforcement) Act, 1961 was  brought on  the statute book to give effect to the New York  Convention. The Act expressly states that it is an Act to  enable effect  being given  to the Convention on the Recognition and  Enforcement of Foreign Arbitral Awards done

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at New  York on the 10th day of June, 1958 to which India is a party  and for purposes connected therewith. Under Section 2 of  the said  Act which  has been  reproduced earlier  the Ministry of Foreign Trade issued a notification dated 7th of February, 1972  in exercise of powers conferred by Section 2 of the  said Act.  The notification  states  that  the  "the Central   Government   being   satisfied   that   reciprocal provisions have  been made,  hereby declares Union of Soviet Socialist  Republics   to  be   a  territory  to  which  the convention on  the recognition  and enforcement  of  foreign arbitral awards  set forth  in  the  schedule  to  that  Act applies." As  a result awards made in the territories of the Union of  Soviet Socialist  Republics could  be enforced  in India under the Foreign Awards (Recognition and Enforcement) Act, 1061.      The appellants contend that on the break-up of the USSR in 1991-1992  it was necessary that a new notification under Section 2  should have  been  issued  by  India  recognising Ukraine as a reciprocal territory. In its absence award made in Ukraine  cannot be  enforce in  India  under  the  Freing Awards  (Recognition   and  Enforcement)   Act,  1961.  This contention  has   no  merit.  The  notification  of  7th  of February, 1972  covers awards made in the territories of the then existing  USSR which  included Ukraine as a part of it. Although various  republics  which  formed  a  part  of  the territories of  the USSR may have separated, the territories continue to  be covered  by the  notification  of  7.2.1972. Prior to  1992 an award made in Ukraine was an award made in a reciprocating  territory as  notified  and  this  position continues even  after the  political separation  of  various Soviet  Socialist  Republics.  Ukraine  continues  to  be  a signatory to the New York Convention and the notification of 7.2.1972  continues  to  operate  in  the  territories  then forming  part  of  the  USSR,  including  the  territory  of Ukraine. Although  the appellants  has relied  upon  various agreements between  India and  the  Russian  Republic  where India was  recognised Russian Republic as a successor of the old  State   of  USSR,  this  makes  no  difference  to  the recognition granted  under the  notification of  7.2.1972 to the entire  territory of  USSR as  then in  existence  as  a reciprocating territory for the purposes of Section 2 of the Foreign Awards  (Recognition  and  Enforcement)  Act,  1961. There is  no implied  curtailment  of  the  notification  of 7.2.1972 as  now applying only to that territory which forms a part of the Russian Republic.      The respondents  have drawn our attention to a decision of the  Bombay High  Court in M/s Francesco v. M/s Gorakhram (AIR 1960  Bom. Page  91), where in a converse situation the question arose whether Arbitration (Protocol and Convention) Act, 1937 had any force in India after 26th of January, 1950 when India  was divided into two State - India and Pakistan. The Court  held that  India, before  partition being a State signatory to  the protocol  on arbitration clauses set forth in the  First Schedule  to  the  Arbitration  (Protocol  and Convention) Act, 1937 and to the Convention on the Execution of Foreign  Arbitral Awards set forth in the Second Schedule to that  Act, the obligations undertaken thereunder continue to bind  India after  India was  constituted a  Dominion and they continue  to bind  India thereafter.  In that  case the Court had relied upon the Indian Independence (International Arrangements) Orders,  1947. This  decision, therefore, does not directly apply to the present case. In view, however, of the notification  of 7th of February, 1972 the contention of the appellants that the present award is not a foreign award as  defined   in  Section   2  must   be  rejected.  No  new

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notification is necessary in respect of Ukraine.      It is next contended by the appellants that the dispute between the  parties is  under the old arbitration agreement of 26th  of August,  1983 and,  therefore, arbitration could only be  in terms  of the  arbitration clause  7.1  of  that agreement which required that the dispute should be referred to the  Maritime Arbitration Commission of the USSR with the Chamber of  Commerce and Industry in Moscow. This contention has to  be rejected  because  the  old  agreement  has  been superseded by  the agreement  of 18th  of   May, 1992  under which, as  per clause  5.2 and  the 1st Addendum, all claims relating to  freight  have  to  be  decided  under  the  new agreements. This  would include  a claim  for freight  under previous agreements  also. The  High Court  has,  therefore, rightly held  that it  is  the  arbitration  clause  in  the agreement of 18th of May, 1992 which governs the parties.      The appellants have raised various disputes in relation to the  arbitration. The  appellants has  contended that the arbitration has  not been  conducted in  accordance with the law of  Ukraine. They also contend that the Government order appointing the  second respondent  as the sole arbitrator is not a  valid appointment  of the  arbitrator. They have also contended that the arbitrator being an official of the first respondent, is  an interested  arbitrator.  The  appellants, however, did  not produce before the High Court any material including the law of Ukraine to establish that the award was invalid as per Ukrainian law or the procedure was incorrect.      Under Section  7 of the Foreign Awards (Recognition and Enforcement) Act, 1961 it is provided as follows :-      "7.  Conditions for  enforcement of      foreign award :      (1)  A foreign  award  may  not  be      enforced under this Act :-      (a)  If the  party against  whom it      is  sought  to  enforce  the  award      proves to  the Court  dealing  with      the case that :      (i)................................      ......      (ii)...............................      ......      (iii)..............................      ......      (iv) the   composition    of    the      arbitral authority  or the arbitral      procedure  was  not  in  accordance      with the  agreement of  the parties      or, failing such agreement, was not      in accordance  with the  law of the      country where  the arbitration took      place.      .................................."      It is  for the  party against  whom a  foreign award is sought to  be enforced,  to prove  to the court dealing with the case  that he  composition of  the arbitral authority or the arbitral procedure was not in accordance with the law of the country  where the arbitration took place. The burden to prove in  this regard  is expressly placed on the challenger by the statute. This section is in conformity with Article V of the  New York  Convention which provides "(1) recognition and enforcement  of the  award may be refused at the request of the  party against whom it is invoked, only if that party furnishes to  the competent  authority where the recognition and  enforcement   is   sought,   proves   that....(d)   the composition of  the arbitral  authority  or  the    arbitral

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procedure was  not in   accordance with the agreement of the parties or failing such agreement was not in accordance with the  law   of  the   country  where   the  arbitration  took place........".  It   was,  therefore,   entirely  for   the appellants  to   prove  before   the  High  Court  that  the appointment of  the second  respondent or  the procedure  of arbitration was  not in  accordance with the law of Ukraine. The appellants, however, did not produce any relevant law of Ukraine in  this connection  apart  from  raising  the  bare contention.      Under Rule  801 of  the Bombay  High Court Rules, which forms a  part of  Chapter XLIII dealing with Rules under the Foreign Awards  (Recognition and  Enforcement) Act. 1961, it is provided as follows :-      "801. Enforcement of foreign award-      The  party  seeking  to  enforce  a      Foreign award  shall  produce  with      his petition :      (c)  An  affidavit   or  affidavits      showing      (1)...................      (2)..................      (3)that it  was made  in conformity      with   the    law   governing   the      arbitration procedure and      (4)that it  had become  binding  on      the parties in the country in which      it  was made.      ......................."      The  respondents   did  file   an  affidavit   in  this connection  affirming  that  the  award  had  been  made  in conformity with  the law  of Ukraine and that it was binding on the  parties under  the law  of Ukraine.  It was  for the appellants who  was challenging the validity of the award to have  shown  that  appointment  of  the  arbitrator  or  the arbitration procedure  was not in accordance with the law of Ukraine. They  failed to  do so.  The High Court, therefore, rightly rejected this contention.      The appellants  have now  sought permission  to produce before us  the arbitration law of Ukraine which according to t hem, is the prevailing law. This is rightly objected to by the respondents.  The respondents  also contend that what is sought to  be produced  is not he entire law on the subject. We  do   not  propose   to  permit  the  appellants  now  to produce/prover the  relevant law  of Ukraine  when they have failed to  do so before the High Court, and their contention has been  consequently  rejected  by  the  High  Court.  The practice of filing fresh documents or evidence for the first time before  this Court when the High Court had rejected the claim in  the absence  of such material, must be deprecated. The appellants  were in  a position  to produce the relevant material before  the High Court. They filed and neglected to do so. They must take the consequence. The respondents have, in this  connection, also pointed out that any objections to the    competence  of  the  arbitrator,  or  any  defect  in arbitration  procedure  could  have  been  agitated  by  the appellants in   Ukraine  before the  prescribed authorities. They have,  however, not  taken any steps in accordance with the law  of Ukraine  to challenge  the  arbitration  or  the award. Hence the award has now become final and binding. The respondents have  filed an  affidavit stating that the award has become  final and  binding as  per  Ukrainian  law.  The appellants has not controverted this by showing the relevant law. A  mere assertion  by the  appellants that the award is defective or  not in  accordance with  the  law  of  Ukraine

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cannot be  treated as  establishing this  contention. On the contrary, the presumption would be in favour of the validity of the award.      The last  objection which is taken by the appellants is to the  second respondent  being appointed  as arbitrator on the ground  that she was a high ranking officer of the first respondent. According  to the  appellants an  award which is given by her cannot be enforced in India because it would be against public  policy. There  is, however,  no violation of any public  policy in  the present  case.  The  parties  had agreed to  be governed  by the  law of Ukraine as far as the arbitration proceedings  were concerned.  If the award given by the  second respondent is valid under the law of Ukraine, then there is no violation of any public policy in enforcing it hers.  Often parties  appoint an  officer of  one of  the parties to  the arbitration agreement, as a sole arbitrator. Sometimes the  agreement in terms so provides. This does not ipso facto make the arbitration or the award contrary to any public policy,  especially if the officer had not personally handled disputed transactions and is impartial.      The High  Court  has,  therefore,  correctly  passed  a decree in  terms of  the award. The appeal is dismissed with costs.