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PETITIONER: SUMITOMO HEAVY INDUSTRIES LTD.

       Vs.

RESPONDENT: ONGC LTD. & ORS.

DATE OF JUDGMENT:       04/12/1997

BENCH: S.P. BHARUCHA, S.C. SEN

ACT:

HEADNOTE:

JUDGMENT:                THE 4TH DAY OF DECEMBER, 1997 Present:                  Hon’ble the Chief Justice                  Hon’ble Mr.Justice S.P.Bharucha                  Hon’ble Mr.Justice S.C.Sen Soli J.Sorabjee,  Shanti Bhushan, B.Dutta, Milon K.Banerjee, Sr.Advs., P.H.Parekh,  Amit  Dhingra,  Nikihil  Shakharande, G.Joshi, G.khandpal,  Virendra, G.K.  Banerjee, Advs.,  with them for the appearing parties.                       J U D G M E N T      The following Judgment of the Court was delivered: BHARUCHA, J.      This appeal by special leave assails the correctness of the judgment and order of a learned single Judge of the High Court at  Bombay. By  the Judgment and order the petition of the first  respondent for the issuance of a direction to the second respondent  to file the award that he had made as the umpire in  arbitration proceeding  between the appellant and the first respondent in that court was allowed.      Briefly stated,  these are  the facts  relevant to  the issue in the appeal:      The appellant  and the  first respondent entered into a contraction on 7th September, 1983, whereunder the appellant agreed to  install and  commission on  trunkey basis  an oil platform at  Bombay High,  about  100  miles  north-west  of Bombay. The contract stipulated the following.      "17.0 Laws/Arbitration      17.1 Applicable Laws      All    questions     disputes    or      difference arising under, out of or      in connection  with  this  Contract      shall be  subject to  the  laws  of      Indian.      17.2 Arbitration      If  any   dispute,  difference   or      question   shall    at   any   time      hereafter arise between the parties      hereto    or    their    respective      representatives   or   assigns   in      respect  of   the  construction  of

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    these   presents    or   concerning      anything   herein    contained   or      arising out of these presents or as      to  the   rights,  liabilities   or      duties   of    the   said   parties      hereunder which  cannot be mutually      resolved by  the parties,  the same      shall be  referred to  arbitration,      the proceeding  of which  shall  be      held at London, U.K. Within 30 days      of the  receipt of  the  notice  of      intention  of  appoint  arbitrators      each   party   shall   appoint   an      arbitrator of  its own  choice  and      inform  the   other  party.  Before      entering upon  the arbitration, the      two arbitrators  shall  appoint  an      umpire. In case the parties fail to      appoint its  arbitrator  within  30      days from  the receipt  of a notice      from the other party in this behalf      of if  any dispute  in selection of      umpire,    the     president     of      International Chamber  of Commerce,      Paris, shall appoint the arbitrator      and/or or  the umpire  as the  case      may be.      The decision of the arbitrators and      failing to  an agreed  decision  by      them, the  decision of  the  umpire      shall be  find and  binding on  the      parties.      The arbitration proceeding shall be      held   in   accordance   with   the      provision of  International Chamber      of  Commerce  and  the  rules  made      thereunder as  amended from time to      time. The  arbitration  proceedings      shall  be   conducted  in   English      language."      Disputes having  arisen subsequent to the completion of the work  under the contract, the appellant served notice of arbitration on the first respondent and appointed Mr. Robert A. MacCrindle its arbitrator. The first respondent appointed Mr. Justice  Chandrasekhar  (Retired)  its  arbitrator.  The arbitrators nominated  the second  respondent as the umpire. Preliminary hearings  commenced. The  appellant then applied to the queens Bench Division, Commercial Court in London for leave  to  issue  and  serve  on  the  first  respondent  an Originating Summons  seeking an order under Section 5 of the English  Arbitration   Act,  1979,   to  confirm   that  the arbitrators had  the power  toe proceed with the arbitration in default  of a  defence having  been served  by the  first respondent. A  learned Judge of the Commercial Court granted to the  first respondent  leave to  issue and serve the said summons.  It   was  heard  and  decided  in  favour  of  the appellant. Thereafter  the first  respondent’s  defence  was served, and  a summons  was issued on the first respondent’s behalf in  the Commercial  Court to  set aside  its  earlier orders. The  application made  by the  first respondent  was decided on  23rd July,  1993 by Potter, J. (The Judgment and order is  reported in  (1994) 1 LIoyd’s Law Reports 45). The arbitrators having  differed, the  second respondent entered upon the  reference and, on 27th June, 1995, made his award. The award  was served  on the first respondent on 10th July,

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1995.      On 26th  July, 1995,  the first respondent filed in the High Court  at Bombay  a petition  praying that  the  second respondent be  directed, under  Section  14  of  the  Indian Arbitration Act,  1940, to file the award in that court. The first respondent  submitted  that  the  award  was  invalid, unenforceable  and   liable  to   be  set  aside  under  the provisions  of   the  said   Act.  The   learned  Judge,  as aforestated, allowed the petition.      The decision  rendered by  Potter, J. in the Commercial Court is  of some importance because the jurisdiction of the English Courts was discussed. The learned Judge said:      "Before stating my reasons for that      conclusion and  then turning to the      "frustration" argument, and because      questions have arisen as to whether      English  law   or  Indian   law  is      appropriate  to   be   applied   at      various stages of this application,      I propose  briefly to advert to the      various laws potentially applicable      to  the   various  aspects  of  the      arbitral  relationship   which  may      fall for  consideration in cases of      this kind.      (1)   The   proper   law   of   the      underlying contract  i.e.  the  law      governing   the    contract   which      creates the  substantive rights and      obligations of  the parties  out of      which the dispute has arisen.      (2)   The   proper   law   of   the      arbitration agreement, i.e. the law      governing rights and obligations of      the  parties   arising  from  their      agreement  to   arbitrate  and,  in      particular,  their   obligation  to      submit    their     disputes     to      arbitration and to honour an award.      This includes  inter alia questions      as   to   the   validity   of   the      arbitration agreement, the validity      of the  notice of  arbitration, the      constitution of  the  tribunal  and      the question  whether an award lies      within  the   jurisdiction  of  the      arbitrator.      (3)   The   proper   law   of   the      reference, i.e.  the law  governing      the contract  which  regulates  the      individual       reference       to      arbitration. This  is an  agreement      subsidiary to but separate from the      arbitration    agreement    itself,      coming into effect by the giving of      a notice  of arbitration from which      point   a   new   set   of   mutual      obligations  in   relation  to  the      conduct of the reference arise upon      lines  canvassed   in  the   Bremer      Vulkan        Schiffbau         and      Maschinenfabrik  v.   South   India      Shipping  Corporation,   [1981]   1      Lloyd’s Rep.  253  at  p.  263  and      developed by  Mr.  Justice  Mustill

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    (as he  then was)  in Black Clawson      International  Ltd.  v.  Papierwork      Waldhof-Aschaffenburg A.G. [1981] 2      Lioyd’s Rep.  446. That law governs      the questions  of whether by reason      of  subsequent   circumstances  the      parties   have    been   discharged      (whether    by    repudiation    or      frustration) from  their obligation      to continue  with the  reference of      the   individual   dispute,   while      leaving   intact   the   continuous      agreement to  refer future disputes      pursuant   to    the    arbitration      agreement.      (4)   The curial  law, i.e. the law      governing      the      arbitration      proceedings themselves,  the manner      in which  the reference  is  to  be      conducted.    It     governs    the      procedural powers and duties of the      arbitrators, questions  of evidence      and the determination of the proper      law of the contract.      In respect  of  many  arbitrations,      the applicable law will be the same      in all four cases. (1) will usually      be  decisive  as  to  (2),  in  the      absence  of   an  express  contrary      choice;  (2)   and  (3)  will  very      rarely differ.  However, as to (4),      it is not uncommon to encounter the      incidence of a different curial law      in cases  where  the  parties  have      made   an    express   choice   for      arbitration (frequently  in London)      in a jurisdiction divorced from the      jurisdiction   with    which    the      contract  in   (1)  has  most  real      connection.      In  this   case,  as  to  (1),  the      parties have made an express choice      of Indian  law as the proper law of      the contract.  As to  (2), it seems      to me  likely (although)  it is not      necessary finally  to decide)  that      the proper  law of  the arbitration      agreement is  similarly Indian law,      since the  arbitration agreement is      part  of   the  substance   of  the      underlying contract  and the  terms      of  cl.  17.1  are  clear  in  that      respect. As  to (3), it matters not      for the purpose of this application      whether  the   governing   law   in      English or  Indian law, because Mr.      Dunning has conceded before me that      there  is  no  material  difference      between   the   two   so   far   as      applicable  to   the  doctrine   of      frustration upon  which  he  relies      (see also  par. 7  of the affidavit      of Mr. Majumdar to that effect).      As to (4), the curial law, it seems      to me  plain that  it is the law of

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    England. There  is, it  is true, no      express  choice   of  curial   law.      However,   there    is   a    clear      requirement  that  the  arbitration      proceedings be  held in  London. In      the absence  of express  agreement,      there  is   a  strong  prima  facie      presumption that the parties intend      the curial law to be the law of the      "seat" of the arbitration, i.e. the      place at  which the  arbitration is      to be conducted, on the ground that      is   the   country   most   closely      connected with  the  proceedings  -      see  Mustill  and  Boyd,  2nd  ed.,      p.64."      Neither of  the parties having filed an appeal from the judgment of  Potter, J.,  its finding  bind them. Based upon these  findings,  it  was  contended  by  Mr.  S.J.Sorabjee, learned counsel  for the  appellant, that the petition filed by the  first respondent  in the  High Court  at Bombay fell outside the  jurisdiction of  that Court  for a direction to the second  respondent to  file his  award in court could be given only  by the courts administering the curial law, that is to say the courts in England. The answer of Mr. Banerjee, learned counsel  for the first respondent, is that the award having been made, the procedural or curial law had ceased to have effect,  and accordingly,  the courts administering the curial law  and no  jurisdiction  to  issue  to  the  second respondent a direction to file his award therein.      This, then, is the central issue in the appeal: what is the area of operation of the curial law.      In Bank  Mellat v. Helliniki Techniki S.A., 1984 (1) QB 291, the Court of Appeal said that the fundamental principle was that  in the absence of any contractual provision to the country,  "the   procedural  (or   curial)   law   governing arbitrations’ was  that of  the forum  of  the  arbitration, since this was the system of law with which the agreement to arbitrate in  the particular  forum would  have its  closest connection. Parties to international arbitrations might well choose London as a convenient neutral forum and "English law will, as  the curial  law,  apply  to  the  conduct  of  the arbitration;  and   the  parties   will,  by  holding  their arbitration here,  subject themselves  for that  purpose  to English law......." (Emphasis supplied.)      In  Naviera   Amazonica  Peruana   S.A.  vs.   Compania International De  Seguros Peru,  1988 (1)  Lloyds Law Report 116, Lord  Justice Kerr summarised the state of the relevant jurisprudence thus:      "A. All contracts which provide for      arbitration and  contain a  foreign      element    may     involve    three      potentially  relevant   systems  of      law.  (1)  The  law  governing  the      substantive contract.  (2) The  law      governing    the    agreement    to      arbitrate and  the  performance  of      that   agreement.   (3)   The   law      governing  the   conduct   of   the      arbitration.  In  the  majority  of      cases all  three will  be the same.      But (1)  will  often  be  different      from (2) and (3). And occasionally,      but rarely,  (2)  may  also  differ      from (3)."

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    He said,  "Prima facie,  i.e. in  the absence  of  some express and  clear provision  to the contrary it must follow that an  agreement that  the curial  or procedural law of an arbitration is  to be law of X has the consequence that X is also to  be the  "seat" of  the arbitration. The lex fori is then the  law of X, and accordingly X is the agreed forum of the arbitration.  A further  consequence is  then  that  the Courts which  are competent  to  control  or  assistant  the arbitration are  the Courts  exercising jurisdiction  at X". The learned  Judge observed  that there  was  no  reason  in theory which precluded "parties to agree that an arbitration shall be  held at a place or in country X but subject to the procedural laws of Y". (Emphasis supplied.)      In the  Law and  Practice of  Commercial Arbitration in England, Second  Edition by  Mustill and  Boyd, there  is  a chapter on  "The applicable  law and the jurisdiction of the Court". Under the subtitle, "Law Governing The Arbitration", it is said,      "An agreed reference to arbitration      involves two groups of obligations.      The  first   concerns  the   mutual      obligations  of   the  parties   to      submit  future   disputes,  or   an      existing  dispute  to  arbitration,      and to  abide by  the  award  of  a      tribunal constituted  in accordance      with  the   agreement.  It  is  now      firmly   established    that    the      arbitration agreement which creates      these  obligations  is  a  separate      contract,   distinct    from    the      substantive agreement  in which  it      si  usually  embedded,  capable  of      surviving the  termination  of  the      substantive      agreement      and      susceptible      of       premature      termination by  express or  implied      consent,  or   by  repudiation   or      frustration,  in   much  the   same      manner as in more ordinary forms of      contract. Since  this agreement has      a distinct  life of its own, it may      in  principle   be  governed  by  a      proper law  of its  own, which need      not  be   the  same   as  the   law      governing the substantive contact.      The second  group  of  obligations,      consisting  of  what  is  generally      referred to  as the ‘curial law’ of      the   arbitration,   concerns   the      manner in which the parties and the      arbitrator are  required to conduct      the  reference   of  a   particular      dispute. According  to the  English      theory of  arbitration, these rules      are to  be ascertained by reference      to the  express or implied terms of      the  agreement  to  arbitrate.  The      being so,  it will  be found in the      great majority  of cases  that  the      curial law,  i.e. the law governing      the conduct  of the  reference,  is      the same  as the  law governing the      obligation  to  arbitrate.  It  is,      however, open  to  the  parties  to

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    submit,     expressly     or     by      implication,  the  conduct  of  the      reference to different law from the      one   governing    the   underlying      arbitration agreement.  In  such  a      case, the  court looks first at the      arbitration   agreement    to   see      whether the  dispute is  one  which      should be arbitrated, and which has      validly been  made the  subject  of      the reference; it then looks to the      curial  law   to   see   how   that      reference should  be conducted; and      then returns  to the  first law  in      order  to   give  effect   to   the      resulting award.      XXX                   XXX                     XXX      It  may   therefore  be  seen  that      problems   arising    out   of   an      arbitration  may,   at   least   in      theory, call for the application of      any one  or more  of the  following      laws-      1.  The proper law of the contract,      i.e. the law governing the contract      which   creates   the   substantive      rights of  the parties,  in respect      of which the dispute has arisen.      2.     The  proper   law   of   the      arbitration agreement, i.e. the law      governing  the  obligation  of  the      parties to  submit the  disputes to      arbitration,  and   to  honour   an      award.      3.   The curial  law, i.e.  the law      governing  the   conduct   of   the      individual reference.      XXX                       XXX                      XXX      1.     The  proper   law   of   the      arbitration agreement  governs  the      validity   of    the    arbitration      agreement, the  question whether  a      dispute lies  within the  scope  of      the  arbitration   agreement;   the      validity   of    the   notice    of      arbitration;  the  constitution  of      the tribunal;  the question whether      an   award    lies    within    the      jurisdiction of the arbitrator; the      formal validity  of the  award; the      question whether  the parties  have      been discharged from any obligation      to arbitrate future disputes.      2.   The curial  law  governs’  the      manner in which the reference is to      be conducted; the procedural powers      and  duties   of  the   arbitrator;      questions    of    evidence;    the      determination of  the proper law of      the contract.      3.  The proper law of the reference      governs; the  question whether  the      parties have  been discharged  from      their obligation  to continue  with      the  reference  of  the  individual

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    dispute.      XXX                   XXX                         XXX      The conclusion  that we  reach is  that the  curial law operates during the continuance of the proceeding before the arbitrator to  govern procedure  and  conduct  thereof.  The courts administering  the curial  law have  the authority to entertain applications  by  parties  to  arbitrations  being conducted within  their  jurisdiction  for  the  purpose  of ensuring  that   the  procedure   that  is  adopted  in  the proceedings  before   the   arbitrator   conforms   to   the requirements of  the curial  law and  for reliefs incidental thereto. Such  authority of  the  courts  administering  the curial law ceases when the proceedings before the arbitrator are concluded.      The proceedings  before the arbitrator commence when he enters upon  the reference  and conclude  with the making of the award.  As the  work by  Mustill and Boyd aforementioned puts, it  with the  making of a valid award the arbitrator’s authority, powers and duties in the reference come to an end and he  is "functus  officio" (page  404). The arbitrator is not obliged  by law to file his award in court but he may be asked by  the party  seeking to  enforce the award to do so. The need  to file  an award  in court  arises only  if it is required to be enforced, and the need to challenge it arises if it  being enforced. The enforcement process is subsequent to and independent of the proceedings before the arbitrator. It is  not governed  by the  curial or  procedural law  that governed the  procedure that  the arbitrator followed in the conduct of the arbitrator.      Mr. Sorabjee  relied upon  observations  in  Dicey  and Morris on  "The Conflict  of Law,  12th Edition".  The first Rule under  the heading  "Arbitration"  in  the  Chapter  on "Arbitration and Foreign Awards" reads thus:      "Rule 57 - (1) The validity, effect      and    interpretation     of     an      arbitration agreement  are governed      by its applicable law.      (2) The  law governing  arbitration      proceeding is the law chosen by the      parties,  or,  in  the  absence  of      agreement, the  law of  the country      in which the arbitration is held."      In discussing  clause (2)  of the  Rule aforementioned, this is stated:      "The   procedural    law   of   the      arbitration will determined how the      arbitrators are to be appointed, in      so far  as this si not regulated in      the  arbitration   agreement;   the      effect of  one party’s  failure  to      appoint an arbitrator, e.g. whether      an arbitrator may be appointed by a      court, or  whether the  arbitration      can   proceed   before   the   sole      arbitrator appointed  by the  other      party, and whether the authority of      an arbitrator  can be  revoked. The      law will  also determine  what  law      the arbitrators  are to  apply, and      whether  they   are   expected   or      allowed to  decide ex aequo et bono      or as  amiables compositeurs,  and,      if not,  whether  the  parties  can      gave them  this power  or impose on      them this  duty. That law will also

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    determine the procedural powers and      duties  of  the  arbitrators,  e.g.      whether   they   must   hear   oral      evidence     (but     not     their      jurisdiction to decide the dispute,      which   is    governed    by    the      arbitration agreement  and the  law      applicable to  it) or  whether  the      arbitrators  have  been  guilty  of      misconduct. It  will also determine      what    judicial    remedies    are      available to  a party who wishes to      apply for security for costs or for      discovery   or    who   wishes   to      challenge the  award  once  it  has      been  rendered  and  before  it  is      sought to  enforce it  abroad,  and      the circumstances in which judicial      remedies    may    be    excluded."      (Emphasis supplied.)      Mr. Sorabjee  submitted, relying  upon the  proposition that  the  procedural  law  would  determine  what  judicial remedies were  available to a party "who wishes to challenge the award  once it has been rendered and before it is sought to enforce  it abroad", that the court that administered the curial law  of  the  arbitration  had  the  jurisdiction  to entertain a  challenge to  the  award  and,  therefore,  the jurisdiction to  receive it.  The footnote  relative to  the above proposition (at pave 583) reads thus:      "Whitworth      Street      Estates      (Manchester) Ltd. v. James Miller &      Partners  Ltd.   [1970]  A.C.   583      (English remedies  not available in      Scots arbitration)."      Mr. Banerjee  submitted, and it seems to us, correctly, that the  case of  James Miller  &  Partners  Vs.  Whitworth Street Estates,  1970  A.C.  583,  does  not  bear  out  the proposition. The facts of the case, shortly put, were these: A contract  was entered  into between  an  English  company, Whitworth,  and   a  Scottish  company,  James  Miller.  The Scottish company  was to  carry  out  work  at  the  English company’s premises in Scotland. The contract did not provide for the  place of  arbitration or  its  procedure.  Disputes arose between  the parties and were referred to arbitration. The arbitration  was held  in Scotland,  in accordance  with Scottish law.  The English  company asked  the arbitrator to state his  award in  the form  of a  special  case  for  the decision of the English courts. The arbitrator refused to do so on  the  ground  that  the  arbitration  was  a  Scottish arbitration, and  he issued  his final  award. The issue was whether the arbitrator should be required to state his award in the  form of  a special  case. The  case was,  therefore, concerned with  the  question  of  which  law  governed  the proceedings before  the arbitrator and not with the question of which law governed proceedings to set an award.      We think  that our  conclusion that the curial law does not  apply  to  the  filing  of  an  award  in  court  must, accordingly, hold  good. We  find support for the conclusion in the  extracts from  Mustill and Boyd which we have quoted earlier.  Where   the  law  governing  the  conduct  of  the reference is different from the law governing the underlying arbitration agreement,  the court  looks to  the arbitration agreement to  see if  the dispute is arbitrable, then to the curial law  to see  how the  reference should  be conducted, "and then  returns to  the first law in order to give effect

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to the resulting award".      The law  which would  apply to the filing of the award, to its enforcement and to its setting aside would be the law governing the  agreement to arbitrate and the performance of that agreement.  Having regard  to the clear terms of Clause 17 of  the contract  between the  appellant  and  the  first respondent, we  are in  no doubt  that the law governing the contract and the law governing the rights and obligations of the parties  arising from their agreement to arbitrate, and, in particular,  their  obligations  to  submit  disputes  to arbitration and to honour the award, are governed by the law of India;  nor is  there any dispute in this behalf. Section 47 of the Indian Arbitration Act, 1940, reads thus:      "47.   Act    to   apply   to   all      arbitrations.  -   Subject  to  the      provisions of  Section 46, and save      in so  far as is otherwise provided      by any  law for  the time  being in      force, the  provisions of  this Act      shall apply to all arbitrations and      to all proceedings thereunder"      Provided that  an arbitration award      otherwise  obtained  may  with  the      consent   of    all   the   parties      interested    be     taken     into      consideration as  a  compromise  or      adjustment of  a suit  by any Court      before which the suit is pending."      The  only   other  statute  which  is  required  to  be considered in the context of the provisions of Section 47 of the  1940   Act  is  the  Foreign  Awards  (Recognition  and Enforcement) Act,  1961. For  the  purposes  of  determining whether the  provision of  the 1940  Act are  subject to the provisions of  the 1961 Act, Section 9 is relevant. It reads thus:      "9. Saving  - Nothing  in this  Act      shall-      (a) prejudice  any rights which any      person would  have had of enforcing      in  India   of  any   award  or  of      availing himself  in India  of  any      award if  this  Act  had  not  been      passed, or      (b) apply  to any  award made on an      arbitration agreement  governed  by      the law of India."      By 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 is not the case of the  appellant that  the High  Court at Bombay lacked the territorial jurisdiction to do so.      In  the  result,  the  appeal  must  fail,  and  it  is dismissed with costs.