Part I of the Arbitration Act, 1996 is applicable only to all the arbitrations which take place within the territory of India

Bharat Aluminium Co.                                      ...Appellant
VERSUS
Kaiser Aluminium Technical Service, Inc.     ...Respondent
WITH
CIVIL APPEAL NO.6284 OF 2004
M/s. White Industries Australia Ltd.              ...Appellant
VERSUS
Coal India Ltd.                                              ...Respondent
WITH
CIVIL APPEAL NO.3678 OF 2007
Bharat Aluminium Co. Ltd.                               ...Appellant
VERSUS
Kaiser Aluminium Technical Service, Inc.     ...Respondent
WITH
-  - 1TRANSFERRED CASE (C) NO.35 OF 2007
Harkirat Singh                                                 ...Petitioner
VERSUS
Rabobank International Holding B.V.             ...Respondent
WITH
SPECIAL LEAVE PETITION (C) NOS. 3589-3590 of 2009
Tamil Nadu Electricity Board                        ...Petitioner
VERSUS
M/s. Videocon Power Limited & Anr.           ...Respondents
WITH
SPECIAL LEAVE PETITON (C) NOS. 31526-31528 of 2009
Tamil Nadu Electricity Board             ...Petitioner
VERSUS
M/s. Videocon Power Ltd. & Anr.                 ...Respondents
WITH
-  - 2SPECIAL LEAVE PETITON (C) NO. 27824 of 2011
Bharati Shipyard Ltd.                        ...Petitioner
VERSUS
Ferrostaal AG & Anr.                                    ...Respondents
WITH
SPECIAL LEAVE PETITION (C) NO. 27841 of 2011
Bharati Shipyard Ltd.                        ...Petitioner
VERSUS
Ferrostaal AG & Anr.                                    ...Respondents
  J U D G M E N T
SURINDER SINGH NIJJAR, J.
1. Whilst hearing C.A. No. 7019 of 2005, a two Judge
Bench  of  this  Court,  on  16
th
 January,  2008,  passed  the
following order:-
“In the midst of hearing of these appeals, learned
counsel for the appellant has referred to the threeJudges  Bench  decision  of this  Court  in  Bhatia
International Vs. Bulk Trading S.A. & Anr., (2002) 4
SCC 105. The said decision was followed in a recent
decision  of  two  Judges  Bench  in  Venture  Global
Engineering Vs. Satyam Computer Services Ltd. &
Anr. 2008 (1) Scale 214. My learned brother Hon'ble
Mr. Justice Markandey Katju has reservation on the
correctness  of  the  said  decisions  in  view  of  the
-  - 3interpretation  of  Clause  (2)  of  Section  2  of  the
Arbitration and Conciliation Act, 1996. My view is
otherwise.
Place these appeals before Hon'ble CJI for listing
them before any other Bench.”
2. Pursuant to the aforesaid order, the appeal was placed
for hearing before a three Judge Bench, which by its order
dated 1
st
 November, 2011 directed the matters to be placed
before the Constitution Bench on 10
th
 January, 2012.
3. Since the issue raised in the reference is pristinely
legal, it is not necessary to make any detailed reference to the
facts of the appeal. We may, however, notice the very essential
facts leading to the filing of the appeal. An agreement dated
22
nd
 April, 1993 was executed between the appellant and the
respondent, under which the respondent was to supply and
install a computer based system for Shelter Modernization at
Balco’s Korba Shelter. The agreement contained an arbitration
clause for resolution of disputes arising out of the contract.
The arbitration clause contained in Articles 17 and 22 was as
under :
“Article 17.1 – Any dispute or claim arising out of or
relating  to  this  Agreement  shall  be  in  the  first
instance,  endeavour  to  be settled  amicably  by
negotiation between the parties hereto and failing
-  - 4which  the  same  will  be  settled  by  arbitration
pursuant  to  the  English  Arbitration  Law  and
subsequent amendments thereto.
Article 17.2 – The arbitration proceedings shall be
carried  out  by  two  Arbitrators  one  appointed  by
BALCO and one by KATSI chosen freely and without
any  bias.  The  court  of  Arbitration  shall  be  held
wholly in London, England and shall use English
language in the proceeding. The findings and award
of the Court of Arbitration shall be final and binding
upon the parties.
Article 22 – Governing Law – This agreement will be
governed by the prevailing law of India and in case
of Arbitration, the English law shall apply.”
4.  The aforesaid clause itself indicates that by reason of
the agreement between the parties, the governing law of the
agreement  was  the  prevailing   law  of  India.  However,  the
settlement procedure for adjudication of rights or obligations
under the agreement was by way of arbitration in London and
the  English  Arbitration  Law  was  made  applicable
to such proceedings. Therefore, the lex fori for the arbitration
is English Law but the substantive law will be Indian Law.
5. Disputes arose between the parties with regard to the
performance  of  the  agreement.  Claim  was  made  by  the
appellant for return of its investment in the modernization
programme,  loss,  profits  and   other  sums.  The  respondent
made  a claim  for  unclaimed instalments plus interest  and
-  - 5damages for breach of intellectual property rights. Negotiations
to reach a settlement of the disputes between the parties were
unsuccessful and a written notice of request for arbitration
was issued by the respondent to the appellant by a notice
dated 13
th
 November, 1997. The disputes were duly referred to
arbitration which was held in England. The arbitral tribunal
made  two  awards  dated  10
th
 November,  2002  and  12
th
November,  2002  in  England.  The  appellant  thereafter  filed
applications under Section 34 of the Arbitration Act, 1996 for
setting aside the aforesaid two awards in the Court of the
learned District Judge, Bilaspur which were numbered as MJC
Nos. 92 of 2003 and 14 of 2003, respectively. By an order
dated 20
th
 July, 2004, the learned District Judge, Bilaspur
held  that  the  applications  filed  by  the  appellant  under
Section  34  of  the  Arbitration  and  Conciliation  Act,  1996
(hereinafter  referred  to  as  the   ‘Arbitration  Act,  1996’)  for
setting  aside  the  foreign  awards  are  not  tenable  and
accordingly dismissed the same.
6. Aggrieved  by  the  aforesaid  judgment,  the  appellant
filed two miscellaneous appeals being Misc. Appeal Nos. 889
of 2004 and Misc. Appeal No.890 of 2004 in the High Court of
-  - 6Judicature at Chattisgarh, Bilaspur. By an order dated 10
th
August, 2005, a Division Bench of the High Court dismissed
the appeal. It was held as follows:
“For  the  aforesaid  reasons,  we  hold  that  the
applications filed by the appellant under Section 34
of the Indian Act are not maintainable against the
two  foreign  awards  dated  10.11.2002  and
12.11.2002 and accordingly dismiss Misc. Appeal
No.889 of 2004 and Misc. Appeal No.890 of 2004,
but  order  that  the  parties  shall  bear  their  own
costs.”
The  aforesaid  decision  has   been  challenged  in  this
appeal.
7. We may also notice that number of other appeals and
special leave petitions as well as transferred case were
listed alongwith this appeal. It is not necessary to take
note of the facts in all matters.
8. We may, however, briefly notice the facts in  Bharati
Shipyard Ltd. Vs. Ferrostaal AG & Anr. in SLP (C) No.27824
of 2011 as it pertains to the applicability of Section 9 of the
Arbitration Act, 1996. In this case, the appellant, an Indian
Company,  entered  into  two  Shipbuilding  Contracts  with
respondent No.1 on 16
th
 February, 2007. The appellant was to
construct vessels having Builders Hull No.379 which was to be
-  - 7completed and delivered by the appellant to the respondent
No.1 within the time prescribed under the two Shipbuilding
Contracts. The agreement contained an arbitration clause. The
parties initially agreed to get their disputes settled through
arbitral  process  under  the  Rules  of  Arbitration  of  the
International  Chamber  of  Commerce  (ICC)  at  Paris,
subsequently,  mutually  agreed  on  29
th
 November,  2010  to
arbitration under the Rules of London Maritime Arbitrators
Association (LMAA) in London. This agreement is said to have
been reached between the parties in the interest of saving
costs and time. Prior to agreement dated 29
th
 November, 2010
relating to arbitration under LMAA Rules, respondent No.1
had filed two requests for arbitration in relation to both the
contracts under Article 4 of ICC Rules on 12
th
 November, 2010
recognizing that the seat of arbitration is in Paris and the
substantive law applicable is English Law. In its requests for
arbitration, respondent No.1 had pleaded in paragraphs 25
and 26 as under:
“Applicable Law:
25. The Contract Clause “Governing Law, Dispute
and  Arbitration  Miscellaneous”  provides  that  the
Contract shall be governed by the Laws of England.”
The  rights  and  obligations  of  the  parties  are
-  - 8therefore to be interpreted in light of English Law
(the applicable law).
26. In summary:
a) disputes arising out of the Contract between the
parties are to be resolved by arbitration under the
ICC Rules;
b) the seat of arbitration is Paris; and
c)  the  substantive  law  to  be  applied  in  the
arbitration  shall be English Law.”
9. Subsequently,  in  view  of  the  agreement  dated  29
th
November, 2010, the first respondent submitted two requests
for arbitration under LMAA Rules in London on 4
th
 February,
2011. During the pendency of the aforesaid two requests, on
10
th
 November,  2010,  the  first  respondent  filed  two
applications  under  Section  9   of  the  Arbitration  Act,  1996
which  are  numbered  as  AA.No.6/2010  and  AA.No.7/2010
seeking orders of injunction against the encashment of refund
bank guarantees issued under the contracts.
10. Learned  District  Judge,  Dakshina  Kannada,
Mangalore granted an ex parte ad interim injunction in both
the applications restraining the appellant from encashing the
bank  guarantee  on  16
th
 November,  2010.  The  appellant
appeared and filed its statement of objections. After hearing,
the learned District Judge passed the judgments and orders
-  - 9on  14
th
 January,  2011  allowing   the  applications  filed  by
respondent No.1 under Section 9 of the Arbitration Act, 1996.
11. Both the orders were challenged in the appeals by the
appellant before the High Court of Karnataka at Bangalore. By
judgment  and  order  dated  9
th
 September,  2011,  the  High
Court allowed the appeal and set aside the orders passed by
the District Judge dated 14
th
 January, 2011. In allowing the
appeal, the High Court held as follows:
“From the above, it is clear that respondent No.1 is
not remedyless (sic). It is already before the Arbitral
Tribunal at London. Thus, it is open for it to seek
interim  order  of  injunction  for  the  purpose  of
preserving  the  assets  as   per  Section  44  of  the
Arbitration Act, 1996 in Courts at London.
Since the parties have agreed that substantive law
governing the contract is English Law and as the
law governing arbitration agreement is English Law,
it  is  open  for  respondent  No.1  to  approach  the
Courts at England to seek the interim relief.”
12. This  special  leave  petition  was  filed  against  the
aforesaid judgment of the High Court.              
13. We  have  heard  very  lengthy  submissions  on  all
aspects of the matter. All the learned counsel on both sides
have made elaborate references to the commentaries of various
experts in the field of International Commercial Arbitration.
-  - 10Reference has also been made to numerous decisions of this
Court as well as the Courts in other jurisdictions.
14. Mr. C.A. Sundaram, appearing for the appellants in
C.A. No. 7019 of 2005 submits that primarily the following five
questions would arise in these cases:- (a)  What is meant by
the place of arbitration as found in Sections 2(2) and 20 of the
Arbitration Act, 1996?; (b) What is the meaning of the words
“under the law of which the award is passed” under Section 48
of  the  Arbitration  Act,  1996 and  Article  V(1)(e)  of  the
Convention on the Recognition and Enforcement of Foreign
Arbitral  Awards  (hereinafter  referred  to  as  “the  New  York
Convention”)?; (c) Does Section 2(2) bar the application of Part
I of the Arbitration Act, 1996 (Part I for brevity) to arbitrations
where the place is outside India?; (d) Does Part I apply at all
stages of an arbitration, i.e., pre, during and post stages of the
arbitral proceedings, in respect of all arbitrations, except for
the  areas  specifically  falling  under  Parts  II  and  III  of  the
Arbitration Act, 1996 (Part II and Part III hereinafter)?; and
(e)  Whether  a  suit  for  preservation  of  assets  pending  an
arbitration proceeding is maintainable?
-  - 1115. Mr.   Soli   Sorabjee,   Mr.   Sundaram,   Mr.   Gopal
Subramanium and Dr. A.M. Singhvi, learned Senior Advocates
for the appellants have in unison emphasised that Part I and
Part II are not mutually exclusive.  They have submitted that
the Arbitration Act, 1996 has not “adopted or incorporated the
provisions of Model Law”.  It has merely “taken into account”
the Model Law. They have made a reference to the judgments
of this Court in the case of Konkan Railway Corporation Ltd.
& Anr. Vs.     Rani Construction Pvt. Ltd.
1
 and SBP & Co. Vs.
    Patel Engineering Ltd. & Anr.
2
  It is emphasised that in fact
the Arbitration Act, 1996 differs from the UNCITRAL Model
Law on certain vital aspects.  It is pointed out that one of the
strongest  examples  is  the  omission  of  the  word  “only”  in
Section 2(2), which occurs in corresponding Article 1(2) of the
Model Law.  The absence of the word “only” in Section 2(2)
clearly signifies that Part I shall compulsorily apply if the place
of arbitration is in India. It does not mean that Part I will not
apply if place of arbitration is not in India.
16. Mr.  Sorabjee  has  emphasised  that  the  omission  of
1  (2002) 2 SCC 388
2  (2005) 8 SCC 618
-  - 12word  “only”  in  Section  2(2)  is not  an  instance  of  “CASUS
OMISSUS”.  The omission of the word clearly indicates that
Model Law has not been bodily adopted by the Arbitration Act,
1996.  All the learned senior counsel seem to be agreed that
the Arbitration Act, 1996 has to be construed by discerning
the intention of the Parliament from the words and language
used, i.e., the provisions of the said Act have to be construed
literally without the addition of any word to any provision.
Therefore, the missing word “only” can not be supplied by
judicial interpretation.  In support of the submission, reliance
is placed on Nalinakhya Bysack Vs. Shyam Sunder Haldar &
    Ors.
3
, Magor & St. Mellons RDC Vs.     Newport Corporation
4
,
Punjab  Land  Devl.  &  Reclamation  Corporation  Ltd. Vs.
    Presiding Officer, Labour Court
5
 and Duport Steels Ltd. Vs.
    Sirs
6
. It is pointed out by Mr. Sorabjee that the doctrine of
ironing out the creases does not justify the substitution of a
new jacket in place of the old, whose creases were to be ironed
out.
3  1953 SCR 533
4  1951 (2) All ER 839
5  (1990) 3 SCC 682
6  (1980) 1 All ER 529
-  - 1317. All  the  learned  counsel  for  the  appellants  have
emphasised that the Arbitration Act, 1996 has not adopted the
territorial criterion/principle completely, party autonomy has
been duly recognized.  This, according to the learned counsel,
is evident from the provisions in Sections 2(1)(e), 2(5), 2(7), 20
and 28.  It is submitted that restricting the operation of Part I
only to arbitration which takes place in India would lead to
reading  words  into  or  adding  words  to  various  provisions
contained in the Arbitration Act, 1996.  It is emphasised that
restricting the applicability of Part I to arbitrations which take
place  only  in  India  would  render  the  provisions  in
Sections  2(5),  2(7)  and  20   redundant.  Mr.  Sundaram  has
reiterated  that  expression  “place”  in  Sections  2(2)  and
Section 20 has to be given the same meaning. Section 20 of
the Arbitration Act, 1996 stipulates that parties are free to
agree on the place of arbitration outside India.  Therefore,
arbitrations conducted under Part I, may have geographical
location outside India.  Similarly, if Part I was to apply only
where  the  place  of  arbitration   is  in  India  then  the  words
“Where the place of arbitration is situated in India” in Section
28(1)  were wholly  unnecessary.   Further,  the  above  words
-  - 14qualify only Sub-section (1) of Section 28 and do not qualify
Sub-section  (3).    The  necessary  implication  is  that  Subsection  (3)  was  intended  to  apply  even  to  foreign-seated
arbitration so long as parties have chosen Arbitration Act,
1996 as law of the arbitration, which could only be if Part I is
to apply to such arbitration.   Therefore, it is submitted by the
learned counsel that the ‘seat’ is not the “centre of gravity” as
far as the Arbitration Act, 1996 is concerned.  The Arbitration
Act, 1996 is “subject matter centric” and not “seat-centric”. In
support of this, the learned counsel placed strong reliance on
the provision contained in Section 2(1) (e), which provides that
“jurisdiction to decide the questions forming the subject-matter
of the arbitration if the same had been the subject matter of a
suit”.  This, according to the learned counsel, is an essential
precondition for a Court to assume jurisdiction under Part I.
The definition of Court in Section 2(1)(e) would necessarily
mean that two foreign parties, in order to resolve a dispute
arising  outside  India  and  governed  by  foreign  law  cannot
invoke  jurisdiction  of  an  Indian  Court  by  simply  choosing
India as the seat of arbitration. It is further submitted that in
the  absence  of  Section  9  of  the  Arbitration  Act,  1996,  no
-  - 15interim  relief  can  be  granted  unless  it  is  in  aid  of  final/
substantive relief that must be claimed in the suit. On the
other   hand,   a   suit   claiming   any   permanent   relief   on   the
substance of the dispute would tantamount to a waiver of the
arbitration clause by the plaintiff. It is, therefore, submitted by
the learned counsel that supplying word “only” in Section 2(2)
will  in  many  cases  leave  a  party  remediless.  It  is  further
submitted that Section 2(7) clearly shows that part I would
apply even to arbitrations which take place outside India. If
Section 2(7) was to be restricted only to arbitrations which
take  place  in  India,  there  would  be  no  need  for  such  a
provision. It is emphasised that the provision clearly states
that  it  applies  to  an  award  made  “under  this  part”. The
aforesaid term  is a clear indication to an arbitration which
takes place outside India, where the parties have chosen the
Arbitration Act, 1996 as the governing law of the arbitration.
Mr. Sorabjee relied on National Thermal Power Corporation
Vs.     Singer Company & Ors.
7
, and submitted that Section 2(7)
is  a  positive  re-enactment  of  Section  9(b)  of  the  Foreign
Awards (Recognition and Enforcement) Act, 1961 (hereinafter
referred to as the ‘1961 Act’). It is emphasised that Section 2(7)
7  (1992) 3 SCC 551
-  - 16has been placed in Part I only to bring it in conformity with
Article V(1)(e) of the New York Convention, which has been
incorporated and enacted as Section 48(1)(e).  The aforesaid
section even though it is dealing with enforcement of awards,
necessarily  recognizes  the  jurisdiction  of  courts  in  two
countries to set aside the award, namely, the courts of the
country  in  which  arbitration   takes  place  and  the  country
under the law of which the award was made.  It is submitted
that both the expressions must necessarily be given effect to
and no part of the act or the section can be disregarded by
describing them as fossil.          
18. Mr. Sorabjee has emphasised that not giving effect to
the words “under the law of which the award was made”, will
allow many awards to go untested in Court. He has relied
upon certain observations made by the U.K. Court in the case
of Reliance Industries Ltd. Vs.     Enron Oil & Gas India Ltd.
8
19. Mr.  Sundaram  points  out  that  the  Arbitration  Act,
1996 departs from the strict territorial criterion/principle as
not only it retains the features of New York Convention but
significantly  departs  from  Model  Law.  The  Model  Law  has
8  2002 (1) Lloyd Law Reports 645
-  - 17sought to bring in an era of localized/territorial arbitration
(Article 1(2)). On the other hand, the Arbitration Act, 1996
recognizes  and  provides  for  de-localized  arbitration.  He
emphasised that under Model Law, all provisions referred to
localized  arbitration  except  the  exceptions  in  Article  1(2).
Under  the  Arbitration  Act,  1996,  all  provisions  are  delocalized, except where “place” qualification has been provided
for.
20.  He  further  submitted  that  in  all  commentaries  of
International Commercial Arbitration, the expression “place” is
used interchangeably with “seat”. In many cases, the terms
used are “place of arbitration”; “the  arbitral situs”; the “locus
arbitri” or “the  arbitral  forum”. Relying  on the judgment in
Braes  of  Doune  Wind  Farm  (Scotland)  Limited Vs.  Alfred
    McAlpine  Business  Services  Limited
9
 which  has  been
affirmed in Shashoua & Ors. Vs.    Sharma
10
   , he submitted that
internationally  “seat” is  interpreted  as  being  the  “juridical
seat”. Therefore, when the parties opt for a given law to govern
the arbitration, it is considered to supplant the law of the
geographical location of the arbitration. Therefore, the mere
9  [2008]EWHC 426 (TCC)
10  [2009] EWHC 957 (Comm.).
-  - 18geographical location is not the deciding factor of the seat. He
relies on the observations made by Gary B. Born in his book
‘International Commercial Arbitration’, which are as follows :
“A  concept  of  central  importance  to  the
international arbitral process is that of the arbitral
seat  (alternatively  referred  to  as  the  “place  of
arbitration”, the “siege” “ort”, the arbitral “situs” the
“locus arbitri” or the arbitral “forum”). The arbitral
seat is the nation where an international arbitration
has its legal domicile, the laws of which generally
govern  the  arbitration  proceedings  in  significant
respects,  with  regard  to both  “internal”  and
“external” procedural matters.”
As  discussed  elsewhere,  the  arbitral  seat  is  the
location selected by the parties (or, sometimes, by
the arbitrators, an arbitral institution, or a court) as
the  legal  or  juridical  home  or  place  of  the
arbitration. In one commentator’s words, the “seat”
is in the vast majority of cases the country chosen
as the place of the arbitration. The choice of the
arbitral seat can be (and usually is) made by the
parties in their arbitration agreement or selected on
the parties’ behalf by either the arbitral tribunal or
an arbitral institution.”  
21. He submits that whist interpreting the word “place” in
Section 2(2), the provisions contained in Section 20 would
have relevance as Section 20 stipulates that the parties are
free to agree on the place of arbitration. The interpretation on
the word “place” in Section 2(2) would also have to be in
conformity with the provisions contained in Section 2(1) (e).
-  - 19Further more, Section 2(2) has to be construed by keeping in
view  the provisions contained in Section  2(7) which would
clearly indicate that the provisions of Part I of the Arbitration
Act, 1996 are not confined to arbitrations which take place
within India. Whilst arbitration which takes place in India by
virtue of Section 2(2) would give rise to a “domestic award”;
the arbitration which is held abroad by virtue of Section 2(7)
would give rise to a “deemed domestic award”; provided the
parties to arbitration have chosen the Arbitration Act, 1996 as
the governing law of arbitration.
22. Mr. Sundaram emphasised that if Section 2(2) had not
been on the Statute book there would be no doubt that if an
arbitration was governed by the Arbitration Act, 1996, Part I
would  ipso facto become applicable to such arbitration, and
under  Section  2(7),  irrespective  of  where  the  arbitral
proceedings took place, it would become a  deemed domestic
award, giving rise to the incidence arising therefrom. By the
inclusion of Section 2(2), the legislature has also made the
Arbitration Act, 1996 and Part I applicable when the seat or
place  of  arbitration  is  in  India  even  if  not  conducted  in
accordance with Indian Arbitral laws thereby domestic what
-  - 20would otherwise have been a non-domestic award having been
conducted in accordance with a Foreign Arbitration Act. By
making such provisions, the Indian Parliament has honoured
the commitment under the New York Convention. He submits
that New York Convention in Articles V(1)(a) and V(1)(e) has
recognized that the courts in both the countries i.e. country in
which the arbitration is held and the country “under the law of
which the award is made” as a court of competent jurisdiction
to question the validity of the arbitral proceedings/award. He,
however, points out that the jurisdiction of the domestic court
is neither conferred by the New York Convention nor under
Part II of the Arbitration Act, 1996, since Part II merely deals
with  circumstances  under  which  an  award  may  be
enforced/may be refused to be enforced. These circumstances
include annulment proceedings in one of the two competent
courts, whether or not any of the two courts have jurisdiction
to  annul  the  proceedings/award,  would  depend  on  the
domestic  law  of  the  country  concerned.  The  Geneva
Convention had brought with it the predominance of the seat,
particularly with reference to the setting aside of the award.
The  two  jurisdictions  were   inserted  in  the  New  York
-  - 21Convention to dilute the predominance of the “seat” over the
party autonomy. He further submitted that the apprehension
that  the  two  courts  of  competent  jurisdiction  could  give
conflicting verdicts on the same award is unfounded. Even if
there were parallel proceedings, it would merely be a question
of case management by the relevant courts in deciding which
proceedings should be continued and which stayed.              
23. Learned counsel have submitted that the findings in
the case of  Bhatia  International Vs. Bulk  Trading  S.A.  &
Anr.
11
(hereinafter referred to as “Bhatia International”) that if
Part  I  was  not  made  applicable  to  arbitrations  conducted
outside  India  would  render  “party  remediless”  is  wholly
correct.  It is not open to a party to file a suit touching on the
merits of the arbitration, since such suit would necessarily
have to be stayed in view of Section 8 or Section 45 of the
Arbitration Act, 1996.  He submits that the only way a suit
can be framed is a suit “to inter alia restrict the defendant
from parting with properties”.  He submits that if the right to
such  property  itself  is  subject  matter  of  an  arbitration
agreement, a suit for the declaration of such right can not be
filed.  All that could then be filed, therefore, would be a bare
11  (2004) 2 SCC 105
-  - 22suit for injunction restraining another party from parting with
property.  The interlocutory relief would also be identical till
such time as the injunction is made permanent.  Such a suit
would  not  be  maintainable  because  :-  (a)  an  interlocutory
injunction can only be granted depending on the institutional
progress  of  some  proceeding  for  substantial  relief,  the
injunction itself must be part of the substantive relief to which
the plaintiff’s cause of action entitles him.  In support of this
proposition, he relies on  Siskina  (Cargo Owners) Vs.  Distos
    Compania Navieria SA
12
   , Fourie Vs.     Le Roux
13
    and Adhunik
Steels Ltd. Vs.     Orissa Manganese and Minerals Pvt. Ltd.
14
   ;
(b) the cause of action for any suit must entitle a party for a
substantive  relief.  Since the substantive relief can not be
asked for as the dispute is to be decided by the arbitrator, the
only relief that could be asked for would be to safeguard a
property which the plaintiff may or may not be entitled to
proceed against, depending entirely on the outcome of another
proceeding, in another jurisdiction, or which the country has
no seisin; (c) in such a suit, there would be no pre-existing
12  1979 AC 210
13  2007 (1) WLR 320; 2007 (1) All ER 1087
14  2007 (7) SCC 125 at 136
-  - 23right to give rise to a cause of action but the right is only
contingent / speculative and in the absence of an existing /
subsisting cause of action, a suit can not be filed; (d) the
absence  of  an existing  / subsisting cause of action  would
entail the plaint in such a suit to be rejected under Order VII
Rule 11a.  Further, no interlocutory injunction can be granted
unless it is in aid of a substantive relief and therefore a suit
simply praying for an injunction would also be liable to be
rejected under Order VII Rule 11; (e) no interim relief can be
granted unless it is in aid of and ancillary to the main relief
that may be available to the party on final determination of
rights in a suit.  Learned counsel refers to State of Orissa Vs.
    Madan Gopal Rungta
15
    in support of the submission; (f) such
a suit would be really in the nature of a suit for interim relief
pending an entirely different proceeding.  It is settled law that
by an interim order, the Court would not grant final relief.
The nature of such a suit would be to grant a final order that
would in fact be in the nature of an interim order.  Here the
learned  counsel  refers  to  U.P.  Junior  Doctors’  Action
Committee  Vs.      Dr.  B.  Sheetal  Nandwani
16
   ,  State  of  Uttar
15  1952(1) SCR 28
16  1997 Suppl (1) SCC 680
-  - 24Pradesh  Vs.      Ram  Sukhi  Devi
17
,  Deoraj  Vs.  State  of
    Maharashtra  &  Ors.
18
    and  Raja  Khan  Vs.  Uttar  Pradesh
    Sunni  Central  Wakf  Board  &  Ors.
19
      He submits that the
intention of the Indian Parliament in enacting the Arbitration
Act, 1996 was not to leave a party remediless.
24. Mr. Gopal Subramanium submits that the issue in the
present case is that in addition to the challenge to the validity
of an award being made in courts where the seat is located,
are  domestic  courts  excluded   from  exercising  supervisory
control by way of  entertaining a challenge to an award? He
submits that the issue arises when it is not possible, in a
given case, to draw an assumption that the validity of the
award is to be judged according to the law of the “place” of
arbitration.  The  Arbitration  Act,  1996  has  removed  such
vagueness. The Arbitration Act, 1996 clearly states that in
respect of all subject matters over which Courts of Judicature
have  jurisdiction,  the  National  Courts  will  have  residual
jurisdiction in matters of challenge to the validity of an award
or enforcement of an award.  He reiterates the submissions
17  (2005) (9) SCC 733
18  (2004) 4 SCC 697
19  (2011) 2 SCC 741
-  - 25made by other learned senior counsel and points out that the
Arbitration Act, 1996 is not  seat centric. This, according to
learned senior counsel, is evident from numerous provisions
contained in Part I and Part II. He points out all the sections
which have been noticed earlier.  According to learned senior
counsel, the definition of International Commercial Arbitration
in Section 2(1)(f) is party centric. This definition is not indexed
to the seat of arbitration. Similarly, the definition in Section
2(1)(e) is  subject matter centric. According to him, there is a
crucial  distinction  between  the  definition  of  international
arbitration in the Model Law and the definition of international
commercial arbitration under the 1961 Act. From the above, he
draws an inference that seat of arbitration being in India is not
a  pre-requisite to  confer  jurisdiction  on  the  Indian  Courts
under the Arbitration Act, 1996. He points out that Section
2(1)(e)  contemplates  nexus  with  “the  subject  matter  of  the
arbitration”. The use of this expression in the definition gives a
clear  indication  of  the  manner  in  which  jurisdiction  is
conferred.  If  an  international  arbitration  takes  place,
irrespective  of  the  seat,  and   the  subject  matter  of  that
arbitration would otherwise be within the jurisdiction of an
-  - 26Indian  Court,  such  Indian  Court  would  have  supervisory
jurisdiction.  Therefore,  if  “the  closest  connection”  of  the
arbitration  is  with  India,  and  if  the  Indian  Courts  would
normally have jurisdiction over the dispute, the Indian Courts
will play a supervisory role in the arbitration. Restricting the
applicability  of  Part  I  of  the  Arbitration  Act,  1996  to  the
arbitration where the seat is in India cannot, according to
Mr.  Subramanium,  provide  a  coherent  explanation  of  subsection 2(1)(e) without doing violence to its language. He also
makes a reference to the opening words of Section 28 “where
the place of arbitration is situate in India”. He then submits
that if the legislature had already made it abundantly clear
that Section 2(2) of the Arbitration Act, 1996 operated as a
complete exclusion of Part I of the aforesaid Act to arbitrations
outside India, the same proposition need not subsequently be
stated as a qualifier in Section 28.
25. Mr.  Gopal  Subramanium  emphasised  that  Part  II
cannot be a complete code as it necessarily makes use of
provisions in Part I. He points out that Part I and Part II of the
Arbitration  Act,  1996  would  have  been  distinct  codes  in
themselves if they had provisions of conducting arbitration in
-  - 27each  part.  However,  Part  I  of  the  Arbitration  Act,  1996
prescribed  the  entire  procedure  for  the  conduct  of  an
arbitration,  whereas  Part  II   is  only  for  recognition  and
enforcement of certain foreign awards. Therefore, he submits
that Part I and Part II cannot be read separately but have to be
read harmoniously in order to make Arbitration Act, 1996 a
complete  code.  He  points  out  that  even  though  certain
provisions of Part I are mirrored in Part II, at the same time,
certain provisions of Part I which are necessary for arbitration
are not covered by Part II. He points out that although Section
45, which is in part II, enables a court to make a reference to
arbitration;  there  is  no  other   provision  like  Section  11  to
resolve a situation when an arbitrator is not being appointed
as per the agreed arbitral procedure. Therefore, Section 11(9)
specially provides for reference in an international commercial
arbitration.  He  further  points  out  that  the  use  of  phrase
“notwithstanding  anything  contained  in  Part  I”  clearly
indicates  that  Section  45  is  to  apply,  irrespective  of  any
simultaneous application of similar provision in Part I. This
section clearly contemplates that provisions of Part I would
apply to matters  covered by Part II. Mr. Subramanium then
-  - 28points out that there is no provision in Part II for taking the
assistance of the court for interim  relief pending arbitration,
like  Section  9  in  Part  I.  Section  27,  according  to  Mr.
Subramanium, is another indication where the assistance of
the Indian Court would be taken in aid of arbitration both
within and outside India. He reiterates that Sections 34 and
48 of the Arbitration Act, 1996 are to be read harmoniously.
He  submits  various  provisions   of  Part  I  are  facilitative  in
character, excepting Section 34 which involves a challenge to
an award. He points out that Section 2(4) and Section 2(5) also
indicate  that  the  Arbitration Act,  1996  applies  to  all
arbitration agreements irrespective of the seat of arbitration.
He submits that the harmonious way to read Section 34 as
well as Section 48 of the Arbitration Act, 1996 is that where a
challenge lies to an award, the legislature must have intended
only one challenge. Thus, if an attempt is made to execute an
award as a decree of the court under Section 36 of Part I, there
can be no doubt that if there is no adjudication under Section
34, there can still be a resistance which can be offered under
Section 48. Similarly, by virtue of Section 48(3) if an award is
challenged under Section 34 before a competent court, the
-  - 29enforcement  proceeding would   be adjourned and  the court
may order suitable security. There will be only one challenge
to an award, either under Section 34 or Section 48. Referring
to  Section  51,  Mr.  Gopal  Subramanium  submits  that  the
rights available under Part II are in addition to rights under
Part I. This  section firstly postulates a hypothesis that the
Chapter  on  New  York  Convention  awards  had  not  been
enacted.  It  further  makes  mention,  in  such  a  scenario,  of
certain rights already occupying the field that is intended to be
covered  by  the  chapter  on  New   York  conventions.  It  also
mentions  that  such  rights  are  coextensive  with  the  rights
under the chapter on the New York Convention. Therefore, the
fact that certain provisions in Part II of the Arbitration Act,
1996 appear to function in the same field as provisions in Part
I, does not mean that the provisions of Part I cease to have
effect, or that the provisions of Part I are no longer available to
a   party.   This,   according   to   Mr.   Subramanium,   is   in
consonance with the history of New York Convention and the
Model Law, which shows that the Model Law was intended to
fill   the   gaps   left   by   the   New   York   Convention   as   well   as
function as a complete code. He, therefore, urges that the
-  - 30sections which have come to be considered essential for the
success of arbitration, such as Sections 9, 11 and 34, must be
considered also available to the parties seeking recognition
and enforcement of foreign awards
26. Finally,  he  submits  that  the  decision  in  Bhatia
International (supra)  is a harmonious construction of Part I
and  Part II of the Arbitration Act, 1996. He further submits
that the case  of  Venture  Global  Engineering Vs. Satyam
    Computer Services      Ltd.  & Anr.
20
    (hereinafter referred to as
“Venture Global Engineering”) has been correctly decided by
this Court. Mr. Subramanium further pointed out that the
judgments of this Court in the case of  ONGC  Vs.  Western
    Company of North America
21
    and National Thermal Power
Corporation Vs.  Singer  Company  &  Ors. (supra) have
appropriately set  aside the awards challenged therein even
though the same were not made in India.
27. Mr.  E.R.  Kumar  appearing  in  SLP  (C)  No.  31526-
31528 of 2009 has adopted the submissions made by Mr.
Subramanium.   In  addition,  he submits  that  the  National
Arbitral  Law,  i.e.,  Part  I  of the  Arbitration  Act,  1996
20  [2008 (4) SCC 190]
21  1987 (1) SCC 496
-  - 31necessarily applies to all arbitrations arising between domestic
parties and pertaining to a domestic dispute.  Thus, even if the
parties in such a case agree with the situs to be abroad, the
same will not  ipso facto take such arbitrations outside the
applicability of Part I and operate to exclude the jurisdiction of
Indian Courts therein.  In other words, two Indian parties
involved in a purely domestic dispute can not contractually
agree  to  denude  the  Courts  of  this  country  of  their
jurisdictions with respect to a legal dispute arising  between
them in India.  He submits that such a contract would be void
under Section 23 and Section 28 of the Indian Contract Act.
28. He placed reliance on a judgment of this Court in the
case of ABC Laminart Pvt. Ltd. Vs.     A.P. Agencies, Salem22
   .
He relies on Para 10 and 16 of the above judgment.  He also
relied  on  the  case  of  Interglobe  Aviation  Ltd. Vs.   N.
    Satchidanand
23
   , wherein this Court has followed the decision
in ABC Laminart Pvt. Ltd. (supra).
29. He submits that the UNCITRAL Model Law has defined
the  term  “international” in  a  broad  and  expansive  manner
22  1989 (2) SCC 163
23  2011 (7) SCC 463
-  - 32allowing full sway to “party autonomy”. Under the Model Law,
it is open to the parties to give international flavour to an
otherwise purely domestic relationship, merely by choosing a
situs of arbitration abroad [Article 1(3)(b)(i)] or even merely by
labelling the arbitration an international one. [Article 1(3)(c)].
30. The Indian law has consciously and correctly departed
from the same and chosen only the nationality test for defining
an  arbitration  as  “international”  as   is   apparent   from
Section 2(1)(f) of the Arbitration  Act, 1996.  Relying  on  the
provision of Sections 2(2), 20 and 28, he further submits that
Arbitration  Act,  1996  precludes  Indian  parties  to  a  purely
domestic dispute from choosing a place of arbitration outside
India.  Mr. Kumar goes even further to submit that when both
the  parties  are  Indian,  the  substantive  law  governing  the
dispute must necessarily be Indian irrespective of the situs of
the arbitration and irrespective of any provision in the contract
between the parties to the contrary.  He submits that the same
principle applies with equal force to the arbitration law too,
that is to say, that if it is not open to two Indian parties with
regard to an entirely domestic dispute to derogate from the
Indian laws of contract, evidence etc., it is equally not open to
-  - 33them derogate from the Indian arbitrational law either.  He
relies  on  judgment  of  this  Court  in  the  case  of  TDM
Infrastructure  Pvt.  Ltd.  Vs.  U.E.  Development  India  Pvt.
    Ltd.,
24
     Paragraphs 19, 20 and 23.  He, however, very fairly
points out that this was a case under Section 11 and the point
in issue here did not specifically arise for consideration in the
said case.
History of Arbitration in India -
31. Before we embark upon the task of interpreting the
provisions of the Arbitration Act, 1996, it would be apposite to
narrate briefly the history of Arbitration Law in India upto the
passing of Arbitration Act, 1996. This exercise is undertaken
purely to consider: (i) what was the law before the Arbitration
Act, 1996 was passed; (ii) what was the mischief or defect for
which the law had not provided; (iii) what remedy Parliament
has appointed; (iv) the reasons of the remedy.
32. Resolution  of  disputes  through  arbitration  was  not
unknown  in  India  even  in  ancient  times.  Simply  stated,
settlement  of  disputes  through   arbitration  is  the  alternate
system  of  resolution  of  disputes  whereby  the  parties  to  a
24  2008 (14) SCC 271
-  - 34dispute get the same settled through the intervention of a
third party. The role of the court is limited to the extent of
regulating the process. During the ancient era of Hindu Law in
India,  there  were  several  machineries  for  settlement  of
disputes between the parties. These were known as  Kulani
(village  council),  Sreni  (corporation)  and  Puga (assembly).
25
Likewise, commercial matters were decided by Mahajans and
Chambers. The resolution of disputes through the panchayat
was a different system of arbitration subordinate to the courts
of law. The arbitration tribunal in ancient period would have
the status of panchayat in modern India.
26
 The ancient system
of panchayat has been given due statutory recognition through
the  various  Panchayat  Acts  subsequently  followed  by
Panchayati Raj Act, 1994. It has now been  constitutionally
recognized in Article 243 of the Constitution of India.
33. However,  we  are  concerned  here  with  modern
arbitration law, therefore, let us proceed to see the legislative
history leading to the enactment of Arbitration Act, 1996.
The Indian Scenario -
25  See P.V Kane History of Dharmasastra, Vol.III P.242
26  See Justice S.Varadachariar Hindu Judicial System P.98
-  - 3534.  The first Indian Act on Arbitration law came to be
passed in 1899 known as Arbitration Act, 1899. It was based
on the English Arbitration Act, 1899. Then came the Code of
Civil Procedure, 1908. Schedule II of the Code contained the
provisions  relating  to  the  law  of  Arbitration  which  were
extended to the other parts of British India. Thereafter the
Arbitration Act, 1940 (Act No.10 of 1940) (hereinafter referred
to as the “1940 Act”) was enacted to consolidate and amend
the law relating to arbitration. This Act came into force on 1
st
July, 1940. It is an exhaustive Code in so far as law relating to
the  domestic  arbitration  is  concerned.  Under  this  Act,
Arbitration may be without the intervention of a Court or with
the intervention of a Court where there is no suit pending or in
a pending suit. This Act empowered the Courts to modify the
Award (Section 15), remit the Award to the Arbitrators for
reconsideration (Section 16) and to set aside the Award on
specific grounds (Section 30). The 1940 Act was based on the
English Arbitration Act, 1934. The 1934 Act was replaced by
the  English  Arbitration  Act,   1950  which  was  subsequently
replaced by the Arbitration Act, 1975. Thereafter the 1975 Act
was  also replaced by the Arbitration Act, 1979. There were,
-  - 36however, no corresponding changes in the 1940 Act. The law
of arbitration in India remained static.
35. The disastrous results which ensued from the abuse
of the 1940 Act are noticed by this Court in the case of Guru
Nanak Foundation Vs. M/s. Rattan Singh & Sons.
27
 Justice
D.A. Desai speaking for the court expressed the concern and
anguish of the court about the way in which the proceedings
under the 1940 Act, are conducted and without an exception
challenged in courts. His Lordship observed :
"Interminable,  time  consuming,  complex  and
expensive  court  procedures  impelled  jurists  to
search for an alternative forum, less formal, more
effective  and  speedy  for   resolution  of  disputes
avoiding procedural claptrap and this led them to
Arbitration Act, 1940 ("Act" for short). However, the
way in which the proceedings under the Act are
conducted and without an exception challenged in
Courts,  has  made  lawyers  laugh  and  legal
philosophers weep. (Emphasis supplied). Experience
shows and law reports bear ample testimony that
the proceedings under the Act have become highly
technical  accompanied  by  unending  prolixity,  at
every stage providing a legal trap to the unwary.
Informal  forum  chosen  by  the  parties  for
expeditious disposal of their disputes has by the
decisions of the Courts been clothed with ‘legalese’
of  unforeseeable  complexity.  This  case  amply
demonstrates the same."
36. This  was  the  arena  of  domestic  arbitration  and
27  1981 (4) SCC 634
-  - 37domestic award.
International Scenario -
37.  Difficulties were also being faced in the International
sphere  of  Trade  and  Commerce.  With  the  growth  of
International Trade and Commerce, there was an increase in
disputes arising out of such transactions being adjudicated
through  Arbitration.  One  of   the  problems  faced  in  such
Arbitration,  related  to  recognition  and  enforcement  of  an
Arbitral Award made in one country by the Courts of other
countries. This difficulty was sought to be removed through
various International Conventions. The first such International
Convention was the Geneva Protocol on Arbitration Clauses,
1923,  popularly  referred  to  as  "the  1923  Protocol".  It  was
implemented  w.e.f.  28
th
 July,  1924.  This  Protocol  was  the
product of the initiative taken by the International Chamber of
Commerce (ICC) under the auspices of the League of Nations.
The 1923 Protocol sought to make arbitration agreements and
arbitration clauses in particular enforceable internationally. It
was also sought to ensure that Awards made pursuant to such
arbitration agreements would be enforced in the territory other
than the state in which they were made. The 1923  Protocol
-  - 38proved  to  be  inadequate.  It  was  followed  by  the  Geneva
Convention on the execution of Foreign Arbitrated Awards,
1927 and  is popularly known as the "Geneva Convention of
1927". This convention was made effective on 25
th
 July, 1929.
India became a signatory to both the 1923 Protocol and the
1927 Convention on 23
rd
 October, 1937. It was to give effect to
both  the  1923  Protocol  and  1927  Convention  that  the
Arbitration (Protocol and Convention) Act, 1937 was enacted
in India. Again a number of problems were encountered in the
operation  of  the  1923  Protocol  and  the  1927  Geneva
Convention. It was felt that there were limitations in relation to
their fields of application. Under the 1927 Geneva Convention
a party in order to enforce the Award in the Country of an
origin was obliged to seek a declaration in the country where
the arbitration took place to the effect that the Award was
enforceable. Only then could the successful party go ahead
and enforce the Award in the country of origin. This led to the
problem  of  “double  exequatur”,  making  the  enforcement  of
arbitral  awards  much  more   complicated.   In  1953  the
International Chamber of Commerce promoted a new treaty to
govern International Commercial Arbitration. The proposals of
-  - 39ICC were taken up by the United Nations Economic Social
Council. This in turn led to the adoption of the convention on
the Recognition and Enforcement of Foreign Arbitral Awards at
New  York  in  1958  (popularly  known  as  "the  New  York
Convention"). The New York Convention is an improvement on
the Geneva Convention of 1927. It provides for a much more
simple and effective method of recognition and enforcement of
foreign  arbitral  awards.  It  gives  much  wider  effect  to  the
validity of arbitration agreement. This convention came into
force on 7
th
 June, 1959. India became a State Signatory to this
convention  on  13
th
 July,  1960.  The  Foreign  Awards
(Recognition and Enforcement) Act, 1961 was enacted to give
effect  to  the  New  York  Convention.  Thus  prior  to  the
enactment of the Arbitration Act, 1996, the law of Arbitration
in India was contained in the Protocol and Convention Act,
1937,  the  Arbitration  Act,  1940  and  the  Foreign  Awards
(Recognition  and  Enforcement)  Act,  1961.  There  were  no
further amendments in the aforesaid three acts.  Therefore, it
was generally felt that the arbitration laws in India had failed
to keep pace with the developments at the international level.
-  - 40The Arbitration Act, 1996
The Objects and Reasons of the Act
38. The Statement of Objects and Reasons referred to the
fact that the existing legal framework was outdated and that
the economic reforms in India would not be fully effective as
“the  law  dealing  with  settlement  of  both  domestic  and
international commercial disputes remained out of tune with
such  reforms”.   It  then  refers  to  the  Model  Law  and  the
recognition of the general assembly of the United Nations that
all countries give due consideration to the Model Laws in view
of  the  “desirability  of  uniformity  of  the  law  of  arbitral
procedures and the specific needs of international commercial
arbitration practice”.  Finally, the Statement of Objects and
Reasons states as follows:-
“3.  Though  the  said  UNCITRAL  Model  Law  and
Rules   are   intended   to   deal  with  international
commercial arbitration and conciliation, they could,
with appropriate modifications, serve as a model for
legislation on domestic arbitration and conciliation.
The present bill seeks to consolidate and amend the
law relating to domestic arbitration, international
commercial  arbitration,   enforcement  of  foreign
arbitral awards and to define the law relating to
conciliation, taking into account the said UNCITRAL
Model Law and Rules.”
The main objectives of the bill are as under:-
-  - 41“(i) to  comprehensively  cover  international  and
commercial arbitration and conciliation as also
domestic arbitration and conciliation;
(ii) to  make  provision  for  an  arbitral  procedure
which is fair, efficient and capable of meeting
the needs of the specific arbitration;
(iii) to  provide  that  the  arbitral  tribunal  gives
reasons for its arbitral award;
(iv) to ensure that the arbitral tribunal remains
within the limits of its jurisdiction:
(v) to minimise the supervisory role of Courts in
the arbitral process;
(vi) to permit an arbitral tribunal to use mediation,
conciliation,  or  other  procedures  during  the
arbitral proceedings to encourage settlement of
disputes;
(vii) to provide that  every  final arbitral award  is
enforced in the same manner as if it were a
decree of the Court;
(viii) to provide that a settlement agreement reached
by  the  parties  as  a  result  of  conciliation
proceedings  will  have  the  same  status  and
effect as an arbitral award on agreed terms on
the substance of the dispute rendered by an
arbitral tribunal; and
-  - 42(ix) to provide that, for purposes of enforcement of
foreign awards, every arbitral award made in a
country to which one of the two International
Conventions relating to foreign arbitral awards
to  which  India  is  a  party  applies,  will  be
treated as a foreign award.”
The Act is one “to consolidate and amend the law relating
to domestic arbitration, international commercial arbitration and
enforcement of foreign arbitral awards as also to define the law
relating to conciliation and for matters connected therewith or
incidental thereto.”
39. The Preamble to the Arbitration Act, 1996 repeats to
some  extent  what  the  Statement  of  Objects  provide,
materially:-
“AND WHEREAS the said Model Law and Rules make
significant  contribution  to  the  establishment  of  a
unified  legal  framework  for  the  fair  and  efficient
settlement  of  disputes  arising  in  international
commercial relations;
AND WHEREAS it is expedient to make law respecting
arbitration  and  conciliation,  taking  into  account  the
aforesaid Model Law and Rules;”
Scheme of the Arbitration Act, 1996 -
40. The Arbitration Act, 1996 is divided into four parts.
-  - 43Part I which is headed “Arbitration”; Part II which is headed
“Enforcement of Certain Foreign Awards”; Part III which is
headed  “Conciliation”  and  Part  IV  being  “Supplementary
Provisions”.  We may notice here that it is only Parts I and II
which have relevance in the present proceedings.
41. We  may  further  notice  here  that  the  1961  Foreign
Awards Act was enacted specifically to give effect to the New
York Convention. The preamble of the 1961 Act is as follows :
"An  Act  to  enable  effect to  be  given  to  the
Convention on the Recognition and Enforcement of
Foreign Arbitral Awards, done at New York on the
10
th
 day of June, 1958, to which India is a party
and for purposes connected therewith."
42. In the 1961 Act, there is no provision for challenging
the  Foreign  Award  on  merits   similar  or  identical  to  the
provisions contained in Sections 16 and 30 of the 1940 Act,
which gave power to remit the award to the arbitrators or
umpire for reconsideration under Section 30 which provided
the grounds for setting aside an award.  In other words, the
1961 Act dealt only with the enforcement of foreign awards.
The Indian Law has remained as such from 1961 onwards.
There was no intermingling of matters covered under the 1940
-  - 44Act, with the matters covered by the 1961 Act.
43. Internationally,  the  Arbitration  Law  developed  in
different countries to cater for the felt needs of a particular
country. This necessarily led to considerable disparity in the
National Laws on arbitration. Therefore, a need was felt for
improvement and harmonization as National Laws which were,
often,  particularly  inappropriate  for  resolving  international
commercial arbitration disputes.  The explanatory note by the
UNCITRAL Secretariat refers to the recurring inadequacies to
be  found  in  outdated  National  Laws,  which  included
provisions  that  equate  the  arbitral  process  with  Court
litigation and fragmentary provisions that failed to address all
relevant substantive law issues.  It was also noticed that “even
most  of  those  laws  that  appear  to  be  up-to-date  and
comprehensive  were  drafted   with  domestic  arbitration
primarily, if not exclusively, in mind”.  It further mentions that
“while this approach is understandable in view of the fact that
even today the bulk of cases governed by arbitration law would
be of purely domestic nature, the unfortunate consequence is
that traditional local concepts are imposed on international
cases and the needs of modern practice are often not met.”
-  - 45There was also unexpected and undesired restrictions found in
National Laws, which would prevent the parties, for example,
from submitting future disputes to arbitration.  The Model Law
was intended to reduce the risk of such possible frustration,
difficulties  or  surprise.   Problems  also  stemmed  from
inadequate arbitration laws or from the absence of specific
legislation governing arbitration which were aggravated by the
fact that National Laws differ widely.  These differences were
frequent source of concern in international arbitration, where
at-least  one  of  the  parties  is,  and  often  both  parties  are,
confronted  with  foreign  and  unfamiliar  provisions  and
procedures.  It was found that obtaining a full and precise
account of the law applicable to the arbitration is, in such
circumstances, often expensive, impractical or impossible.
44. With these objects in view, the UNCITRAL Model Law
on International Arbitration (“the Model Law”) was adopted by
the United Nations Commission on International Trade Law
(UNCITRAL) on 21
st
 June, 1985 at the end of the 18
th
 Session
of  the  Commission.   The  General  Assembly  in  its
Resolution 40 of 1972 on 11
th
 December, 1985 recommended
that "all States give due consideration to the Model Law on
-  - 46international commercial arbitration, in view of the desirability
of uniformity of the law of arbitral procedures and the specific
needs of international commercial arbitration practice".
45. The aim and the objective of the Arbitration Act, 1996
is to give effect to the UNCITRAL Model Laws.
46.   Keeping in view the aforesaid historical background; the
objects and reasons of the Act and the elaborate submissions
made by the learned counsel for the parties, it would now be
necessary to consider the true scope of the provisions of Part I
and Part II of the Arbitration Act, 1996.
47.   Since   the   reference   relates  to  the  ratio  in  Bhatia
International  (supra)  and Venture  Global  Engineering
(supra), it would be appropriate to make a brief note about the
reasons given by  this Court in support of the conclusions
reached therein.
48. In Bhatia International, the appellant entered into a
contract  with  the  1st  respondent  on  9
th
 May,  1997.  This
contract contained an arbitration clause, which provided that
arbitration was to  be as per the rules of the International
-  - 47Chamber  of  Commerce  (for  short  “ICC”).  On  23
rd
 October,
1997, the 1
st
 respondent filed a request for arbitration with
ICC.  Parties  agreed  that  the  arbitration  be  held  in  Paris,
France. ICC appointed a sole arbitrator.  The 1
st
 respondent
filed an application under Section 9 of the Arbitration Act,
1996 before the IIIrd Additional District Judge, Indore, M.P.
against  the  appellant  and  the  2
nd
 respondent.  One  of  the
interim reliefs sought was an order of injunction restraining
these  parties  from  alienating,  transferring  and/or  creating
third-party rights, disposing of, dealing with and/or selling
their business assets and properties. The appellant raised the
plea of maintainability of such an application. The appellant
contended that Part I of the Arbitration Act, 1996 would not
apply to arbitrations where the place of arbitration is not in
India. This application was dismissed by the IIIrd Additional
District Judge on 1
st
 February, 2000. It was held that the
Court  at  Indore  had  jurisdiction  and  the  application  was
maintainable. The appellant filed a writ petition before the
High Court of Madhya Pradesh, Indore Bench. The said writ
petition was dismissed by the judgment dated 10
th
 October,
2000, which was impugned in the appeal before this Court.
-  - 48On behalf of the appellants, it was submitted that Part I of the
Arbitration  Act, 1996 only applies to arbitrations where the
place of arbitration is in India. It was also submitted that if the
place  of  arbitration  is  not  in India  then  Part  II  of  the
Arbitration Act, 1996 would apply. Reliance was also placed
on Section 2(1)(f).  With regard to Section 2(4) and (5), it was
submitted that the aforesaid provisions would only apply to
arbitrations which take place in India.  It was submitted that if
it is held that   Part I applies to all arbitrations, i.e., even to
arbitrations whose place of arbitration is not in India,  then
sub-section (2) of Section 2 would become redundant and/or
otiose.   It  was  also  pointed  out  that  since  Section  9  and
Section  17  fall  in  Part  I,  the  same  would  not  have  any
application in cases where the place of arbitration is not in
India.  It was emphasised that the legislature had deliberately
not provided any provision similar to Section 9 and Section 17
in Part II.  It was also submitted that a plain reading of Section
9 makes it clear that it would not apply to arbitrations which
take place outside India. It was further submitted that Section
9 provides that an application for interim measures must be
made before the award is enforced in accordance with Section
-  - 4936, which deals with enforcement of domestic awards only. On
the other hand, provisions for enforcement of foreign awards
are contained in Part II.  It was submitted that Section 9 does
not talk of enforcement of the award in accordance with Part
II.  It was further submitted that there should be minimum
intervention by the Courts in view of the underlying principle
in Section 5 of the Arbitration Act, 1996.  On the other hand,
the respondents therein had made the submissions, which are
reiterated before us.  In Paragraph 14 of the Judgment, it is
held as follows:-
“14. At first blush the arguments of Mr Sen appear
very  attractive.  Undoubtedly  sub-section  (2)  of
Section 2 states that Part I is to apply where the
place of arbitration is in India. Undoubtedly, Part II
applies to foreign awards. Whilst the submissions of
Mr Sen are attractive, one has to keep in mind the
consequence  which  would  follow  if  they  are
accepted. The result would:
(a) Amount to holding that the legislature has
left a lacuna in the said Act. There would
be a lacuna as neither Part I or II would
apply  to  arbitrations  held  in  a  country
which is not a signatory to the New York
Convention  or  the  Geneva  Convention
(hereinafter  called  “a  non-convention
country”). It would mean that there is no
law, in India, governing such arbitrations.
(b) Lead to an anomalous situation, inasmuch
as  Part  I  would  apply  to  Jammu  and
-  - 50Kashmir  in  all  international  commercial
arbitrations but Part I would not apply to
the rest of India if the arbitration takes
place out of India.
(c) Lead to a conflict between sub-section (2)
of Section 2 on one hand and sub-sections
(4)  and  (5)  of  Section  2  on  the  other.
Further, sub-section (2) of Section 2 would
also be in conflict with Section 1 which
provides that the Act extends to the whole
of India.
(d) Leave a party remediless inasmuch as in
international  commercial  arbitrations
which  take  place  out  of  India  the party
would not be able to apply for interim relief
in India even though the properties and
assets are in India. Thus a party may not
be able to get any interim relief at all.”
49. It  is  held  that  the  definition  of  international
commercial  arbitration  under  Section  2(1)(f)  makes  no
distinction between international commercial arbitrations held
in  India  or  outside  India.  Further  it  is  also  held  that  the
Arbitration Act, 1996 no where provides that its provisions are
not to apply to international commercial arbitrations which take
place in a non-convention country. Hence, the conclusion at
Paragraph 14(a).  On the basis of the discussion in Paragraph
17, this Court reached the conclusion recorded at Paragraph
14(b).  The conclusions at Paragraph 14(c) is recorded on the
-  - 51basis of the reasons stated in Paragraphs 19, 20, 21, 22 and
23.  Upon consideration of the provision contained in Sections
2(7), 28, 45 and 54, it is held that Section 2(2) is only an
inclusive and clarificatory provision.  The provision contained
in Section 9 is considered in Paragraphs 28, 29, 30 and 31.  It
is concluded in Paragraph 32 as follows:-
“32. To conclude, I 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
compulsorily 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.”
50. In  Venture  Global  Engineering  (supra), this Court
relied  on  Paragraphs  14,  17,  21,  26,  32  and  35.   It  is
concluded in Paragraph 37 as follows:-
“37. In view of the legal position derived from Bhatia
International we are unable to accept Mr. Nariman's
argument. It is relevant to point out that in this
proceeding we are not deciding the merits of the
claim of both parties, particularly, the stand taken
in the suit filed by the appellant herein for setting
aside the award. It is for the court concerned to
-  - 52decide  the  issue  on  merits  and  we  are  not
expressing  anything  on  the  same.  The  present
conclusion is only with regard to the main issue
whether the aggrieved party is entitled to challenge
the foreign award which was passed outside India in
terms of Sections 9/34 of the Act. Inasmuch as the
three-Judge  Bench  decision  is  an  answer  to  the
main  issue  raised,  we  are  unable  to  accept  the
contra view taken in various decisions relied on by
Mr. Nariman. Though in Bhatia International the
issue relates to filing a petition under Section 9 of
the Act for interim orders the ultimate conclusion
that Part I would apply even for foreign awards is an
answer to the main issue raised in this case.”
51. As noticed above, the learned senior counsel for the
appellants have supported the ratio of law laid down in Bhatia
International  (supra)  and Venture  Global  Engineering
(supra). They have also supported the decisions in ONGC Vs.
Western  Company  of  North  America (supra)  and National
    Thermal      Power  Corporation  Vs.  Singer  Company  &  Ors.
(supra).
52. In order to consider the issues raised and to construe
the  provisions  of  the  Arbitration  Act,  1996  in  its  proper
perspective, it would be necessary to analyse the text of the
Arbitration Act, 1996 with reference to its legislative history
and international conventions. We shall take due notice of the
stated objects and reasons for the enactment of the Arbitration
-  - 53Act, 1996.
53. Further, for a comprehensive and clear understanding
of the connotations of the terms used in the Arbitration Act,
1996, a brief background of various laws applicable to an
International Commercial Arbitration and distinct approaches
followed by countries across the world will also be useful.  
54. With utmost respect, upon consideration of the entire
matter, we are unable to support the conclusions recorded by
this Court in both the judgments i.e.  Bhatia  International
(supra) and Venture Global Engineering (Supra).
55. In our opinion, the conclusion recorded at Paragraph
14B can not be supported by either the text or context of the
provisions in Section 1(2) and proviso thereto. Let us consider
the provision step-by–step, to avoid any confusion. A plain
reading  of  Section  1  shows  that the Arbitration  Act,  1996
extends  to  whole  of  India,  but the  provisions  relating  to
domestic arbitrations, contained in Part I, are not extended to
the State of Jammu and Kashmir. This is not a new addition.
Even the 1940 Act states:
“Section 1 - Short title, extend and commencement –
-  - 54(1)  ……………………………….,
(2) It extends to the whole of India (except the State
of Jammu and Kashmir).”
56. Thus, the Arbitration Act, 1996 maintains the earlier
position so far as the domestic arbitrations are concerned.
Thereafter,  comes  the  new  addition  in  the  proviso  to
Section 1(2), which reads as under:
“Provided that Parts I, III and IV shall extend to the
State of Jammu and Kashmir only in so far as they
relate to international commercial arbitration or, as
the  case  may  be,  international  commercial
conciliation.”
57. The  proviso  is  necessary  firstly  due  to  the  special
status of the State of Jammu & Kashmir, secondly to update
the  Jammu  and  Kashmir  Act,  1945.  In  our  opinion,  the
proviso  does  not  create  an  anomaly.  The  aforesaid  Act  is
almost a carbon copy of the 1940 Act. Both the Acts do not
make  any  provision  relating  to  International  Commercial
Arbitration. Such a provision was made under the Arbitration
Act,   1996   by   repealing   the   existing   three   Acts,   i.e.,   1937
Protocol Act, 1940 Act and the Foreign Awards Act, 1961.
Therefore,  the  proviso  has  been  added  to  incorporate  the
provisions  relating  to  International  Commercial  Arbitration.
-  - 55The Arbitration Act, 1996 would not apply to purely domestic
arbitrations which were earlier covered by the Jammu and
Kashmir  Act,  1945  and  now  by  the  Jammu  &  Kashmir
Arbitration and Conciliation Act, 1997.  We are also unable to
agree with the conclusion that in Jammu & Kashmir, Part I
would apply even to arbitration which are held outside India
as  the  proviso  does  not  state  that  Part  I  would  apply  to
Jammu & Kashmir only if the place of Arbitration is in Jammu
&   Kashmir. Since     Section  2(2)  of Part I applies to all
arbitrations, the declaration of territoriality contained therein
would  be  equally  applicable in  Jammu  &  Kashmir.  The
provision  contained  in  Section   2(2)  is  not  affected  by  the
proviso which is restricted to Section 1(2). By the process of
interpretation, it can not be read as a proviso to Section 2(2)
also. It can further be seen that the provisions relating to
“Enforcement  of  Certain  Foreign  Awards”  in  Part  II  would
apply without any restriction, as Part II has no relation to the
enforcement of any purely domestic awards or domestically
rendered  international  commercial  awards.  These  would  be
covered by the Jammu & Kashmir Act, 1997.
58.  In view of the above, we are unable to discern any
-  - 56anomaly as held in Bhatia International (supra). We also do
not discern any inconsistency between Section 1 and Section
2(2) of the Arbitration Act, 1996.
Does  Section  2(2)  bar  the   Application  of  Part  I  to
Arbitrations which take place outside India?
59. The crucial difference between the views expressed by
the appellants on the one hand and the respondents on the
other hand is as to whether the absence of the word “only” in
Section 2(2) clearly signifies that Part I of the Arbitration Act,
1996 would compulsorily apply in the case of arbitrations held
in India, or would it signify that the Arbitration Act, 1996
would be applicable only in cases where the arbitration takes
place in India.  In  Bhatia  International  and Venture  Global
Engineering  (supra), this Court has concluded that Part I
would also apply to all arbitrations held out of India, unless
the parties by agreement, express or implied, exclude all or
any of its provisions. Here again, with utmost respect and
humility,  we  are  unable  to  agree  with  the  aforesaid
conclusions for the reasons stated hereafter.
60. It is evident from the observation made by this Court
-  - 57in Konkan Railway Corporation Ltd. & Anr. (supra) that the
Model  Law  was  taken  into  account  in  drafting  of  the
Arbitration Act, 1996.  In Paragraph 9, this Court observed
“that  the  Model  Law  was  only  taken  into  account  in  the
drafting of the said Act is, therefore, patent.  The Arbitration
Act,  1996  and  the  Model  Law  are not  identically  drafted”.
Thereafter, this Court has given further instances of provisions
of the Arbitration Act, 1996, not being in conformity with the
Model Law and concluded that “The Model Law and judgments
and  literature  thereon  are,  therefore,  not  a  guide  to  the
interpretation of the Act and, especially of Section 12 thereof”.
The aforesaid position, according to Mr. Sorabjee has not been
disagreed with by this Court in SBP & Co. (supra).  We agree
with the submission of Mr. Sorabjee that the omission of the
word  “only”  in  Section  2(2)  is not  an  instance  of  “CASUS
OMISSUS”. It clearly indicates that the Model Law has not
been bodily adopted by the Arbitration Act, 1996.  But that
can  not  mean  that  the  territorial  principle  has  not  been
accepted.  We would also agree with Mr. Sorabjee that it is not
the function of the Court to supply the supposed omission,
which  can  only  be  done  by  Parliament.     In   our   opinion,
-  - 58legislative surgery is not a judicial option, nor a compulsion,
whilst  interpreting  an  Act  or  a  provision  in  the  Act.  The
observations made by this Court in the case of  Nalinakhya
Bysack  (supra) would tend to support the aforesaid views,
wherein it has been observed as follows:-
“It must always be borne in mind, as said by Lord
Halsbury in Commissioner for Special Purpose of
Income Tax Vs.     Premsel
28
   , that it is not competent
to any Court to proceed upon the assumption that
the  legislature  has  made   a  mistake.   The  Court
must  proceed  on  the  footing  that  the  legislature
intended what it has said.  Even if there is some
defect in the phraseology used by the legislature the
Court  cannot,  as  pointed  out  in  Crawford Vs.
    Spooner
29
   , aid the legislature’s defective phrasing of
an Act or add and amend or, by construction, make
up  deficiencies  which  are  left  in  the  Act.   Even
where there is a casus omissus, it is, as said by
Lord  Russell  of  Killowen  in  Hansraj  Gupta Vs.
Official  Liquidator  of  Dehra  Dun-Mussoorie
    Electric  Tramway Co.,  Ltd.
30
   , for others than the
Courts to remedy the defect.”
61. Mr.  Sorabjee  has  also   rightly  pointed  out  the
observations made  by  Lord Diplock  in the  case of  Duport
Steels Ltd. (supra).  In the aforesaid judgment, the House of
Lords  disapproved  the  approach adopted  by  the  Court  of
28  LR (1891) AC 531 at Page 549
29  6 Moo PC 1 : 4 MIA 179
30  (1933) LR 60 IA 13; AIR (1933) PC 63
-  - 59Appeal  in  discerning  the  intention  of  the  legislature,  it  is
observed that:-
“…the  role  of  the  judiciary  is  confined  to
ascertaining  from  the  words  that  Parliament  has
approved  as  expressing   its  intention  what  that
intention was, and to giving effect to it.  Where the
meaning  of  the  statutory  words  is  plain  and
unambiguous  it  is  not  for  the  judges  to  invent
fancied ambiguities as an excuse for failing to give
effect to its plain meaning because they themselves
consider that the consequences of doing so would be
inexpedient,  or  even  unjust  or  immoral.   In
controversial  matters  such  as  are  involved  in
industrial relations there is room for differences of
opinion as to what is expedient, what is just and
what is morally justifiable.  Under our Constitution
it is  Parliament’s opinion on these matters that is
paramount.”                             (emphasis supplied)
In the same judgment, it is further observed:-
“But if this be the case it is for Parliament, not for
the judiciary, to decide whether any changes should
be made to the law as stated in the Act.”
62. The above are well accepted principles for discerning
the intention of the legislature.  In view of the aforesaid, we
shall construe the provision contained in Section 2(2) without
adding the word “only” to the provision.
63. We are unable to accept the submission of the learned
counsel for the appellants that the omission of the word “only”
-  - 60from Section 2(2) indicates that applicability of Part I of the
Arbitration Act, 1996 is not limited to the arbitrations that
take  place  in  India.   We  are  also  unable  to  accept  that
Section 2(2) would make Part I applicable even to arbitrations
which take place outside India.  In our opinion, a plain reading
of  Section  2(2)  makes  it  clear  that  Part  I is limited in its
application to arbitrations which take place in India. We are in
agreement with the submissions made by the learned counsel
for the respondents, and the interveners in support of the
respondents, that Parliament by limiting the applicability of
Part I to arbitrations which take place in India has expressed a
legislative declaration. It has clearly given recognition to the
territorial principle.  Necessarily therefore, it has enacted that
Part  I  of  the  Arbitration  Act,  1996  applies  to  arbitrations
having their place/seat in India.
Does the missing ‘only’  indicate  a  deviation from  Article
1(2) of the Model Law?
64. As  noticed  earlier  the  objects  and  reasons  for  the
enactment of the Arbitration Act, 1996 clearly indicate that the
Parliament had taken into account the UNCITRAL Model Laws.
-  - 61The statement of the objects and reasons of the Arbitration
Act, 1996 clearly indicates that law of arbitration in India at
the  time  of  enactment  of  the  Arbitration  Act,  1996,  was
substantially  contained  in  three  enactments,  namely,  The
Arbitration  Act,  1940;  The  Arbitration  (Protocol  and
Convention) Act, 1937 and The Foreign Awards (Recognition
and Enforcement) Act, 1961. It is specifically observed that it
is widely felt that the Arbitration Act, 1940, which contains
the general law of arbitration, has become outdated.  It also
mentions  that  the  Law  Commission  of  India,  several
representative bodies of trade and industry and experts in the
fields  of  arbitration  have  proposed  amendments  to  the
Arbitration  Act,  1940,  to  make  it  more  responsive  to
contemporary  requirements.  It was also recognized that the
economic  reforms  initiated  by  India  at  that  time  may  not
become fully effective, if the law  dealing with settlement of
both domestic and international commercial dispute remained
out  of  tune  with  such  reforms.   The  objects  and  reasons
further  make  it  clear  that  the  general  assembly  has
recommended that all countries give due consideration to the
Model Law adopted in 1985, by the UNCITRAL, in view of the
-  - 62desirability of uniformity of the law of arbitral procedures and
the  specific  needs  of  international  commercial  arbitration
practice.   Paragraph 3 of the statement of objects and reasons
makes it clear that although the UNCITRAL Model Laws are
intended to deal with international commercial arbitration and
conciliation, they could, with appropriate modifications, serve
as a Model Law for legislation of domestic arbitration and
conciliation.   Therefore,  the bill was  introduced  seeking to
consolidate  and  amend  the  law  relating  to  domestic
arbitration, international commercial arbitration, enforcement
of  foreign  arbitral award and  to define the law  relating to
conciliation, taking into account the UNCITRAL Model Law and
Rules.   We have set out the main objects of the bill a little
earlier, Paragraph 3(5) of which clearly states that one of the
objects  is  “to  minimize  the  supervisory  role  of  Courts  in
arbitral process”.
65. Much of the debate before us was concentrated on the
comparison between Article 1(2) of UNCITRAL and  Section
2(2).  Learned counsel for the appellants had canvassed that
the Parliament had deliberately deviated from Article 1(2) of
UNCITRAL to express its intention that Part I shall apply to all
-  - 63arbitrations whether they take place in India or in a foreign
country.   The  word  “only”  is  conspicuously  missing  from
Section 2(2) which is included in Article 1(2) of UNCITRAL.
This indicates that applicability of Part I would not be limited
to Arbitrations which take place within India.  Learned counsel
for the appellants submitted that in case the applicability of
Section 2(2) is limited to arbitrations which take place within
India, it would give rise to conflict between Sections 2(2), 2(4),
2(5),  2(7),  20  and  28.  With  equal  persistence,  the  learned
counsel for the respondents have submitted that Part I has
accepted  the  territorial  principle  adopted  by  UNCITRAL  in
letter and spirit.  
66. Whilst interpreting the provisions of the Arbitration
Act, 1996, it is necessary to remember that we are dealing
with the Act which seeks to consolidate and amend the law
relating  to  domestic  arbitration,  international  commercial
arbitration and enforcement of foreign arbitral awards.  The
aforesaid  Act  also  seeks  to  define  the  law  relating  to
conciliation and for matters connected therewith or incidental
thereto.  It is thus obvious that the Arbitration Act, 1996 seeks
-  - 64to repeal and replace the  three pre-existing  Acts,  i.e., The
Arbitration  Act,  1940;  The  Arbitration  (Protocol  and
Convention) Act, 1937 and the Foreign Awards (Recognition
and Enforcement) Act, 1961. Section 85 repeals all the three
Acts. Earlier the 1937 Act catered to the arbitrations under
the Geneva Convention. After the 1958 New York Convention
was ratified by India, the 1961 Act was passed. The domestic
law of arbitration had remained static since 1940.  Therefore,
the Arbitration Act, 1996 consolidates the law on domestic
arbitrations by incorporating the provisions to expressly deal
with  the  domestic  as  well  as international  commercial
arbitration; by taking into account the 1985 UNCITRAL Model
Laws.  It is not confined to the New York Convention, which is
concerned only with enforcement of certain foreign awards.   It
is also necessary to appreciate that the Arbitration Act, 1996
seeks to remove the anomalies that existed in the Arbitration
Act, 1940 by introducing provisions based on the UNCITRAL
Model  Laws,  which  deals  with  international  commercial
arbitrations  and  also  extends   it  to  commercial  domestic
arbitrations.  UNCITRAL  Model  Law  has  unequivocally
accepted the territorial principle. Similarly, the Arbitration Act,
-  - 651996  has  also  adopted  the  territorial  principle,  thereby
limiting the applicability of Part I to arbitrations, which take
place in India.
67. In our opinion, the interpretation placed on Article 1(2)
by the learned counsel for the appellants, though attractive,
would not be borne out by a close scrutiny of the Article.
Article 1(2) reads as under:-
“Article 1(2): The provisions of this law, except
Articles 8, 9, 17(H), 17(I), 17(J), 35 and 36 apply
“only” if the place of arbitration is in the territories
of this State”.
68. The aforesaid article is a model and a guide to all the
States, which have accepted the UNCITRAL Model Laws. The
genesis of the word “only” in Article 1(2) of the Model Law can
be seen from the discussions held on the scope of application
of Article 1 in the 330
th
 meeting, Wednesday, 19 June, 1985 of
UNCITRAL.  This  would  in  fact demonstrate  that  the  word
“only” was introduced in view of the exceptions  referred to in
Article 1(2) i.e. exceptions relating to Articles 8, 9, 35 & 36
(Article  8  being  for  stay  of  judicial  proceedings
covered  by  an  arbitration  agreement;  Article  9  being  for
interim reliefs; and Articles 35 & 36 being for enforcement of
-  - 66Foreign Awards). It was felt necessary to include the word
“only” in order to clarify that except for Articles 8, 9, 35 & 36
which could have extra territorial effect if so legislated by the
State, the other provisions would be applicable on a strict
territorial basis. Therefore, the word  “only” would have been
necessary in case the provisions with regard to interim relief
etc. were to be retained in Section 2(2) which could have extraterritorial application. The Indian legislature, while adopting
the  Model  Law,  with  some  variations,  did  not  include  the
exceptions mentioned in   Article 1(2) in the corresponding
provision Section 2(2). Therefore, the word “only” would have
been superfluous as none of the exceptions were included in
Section 2(2).
69. We are unable to accept the submission of the learned
counsel  for  the  appellants  that  the  omission  of  the  word
“only”, would show that the Arbitration Act, 1996 has not
accepted the territorial principle. The Scheme of the Act makes
it abundantly clear that the territorial principle, accepted in
the  UNCITRAL  Model  Law,  has  been  adopted  by  the
Arbitration Act, 1996.
-  - 6770. That  the  UNCITRAL  Rules  adopted  strict  territorial
principle  is  evident  from  the  Report  of  the  UNCITRAL  in
paragraphs 72 to 80 on the work of its 18
th
 Session in Vienna
between 3
rd
 to 21
st
 June, 1985. The relevant extracts of these
paragraphs are as under:
“72. Divergent  views  were  expressed  as  to
whether the Model Law should expressly state its
territorial  scope  of  application  and,  if  so,  which
connecting  factor  should  be  the  determining
criterion………………………………………………………
………………………………………………………………..”
“73, As  regards  the  connecting  factor  which
should determine the applicability of the (Model) Law
in a given State, there was wide support for the socalled strict territorial criterion, according to  which
the Law would apply where the place of arbitration
was  in  that
State……………………………………………………………
………………………………………………………….”
“74. Another  view  was  that  the  place  of
arbitration should not be exclusive in the sense that
parties would be precluded from choosing the law of
another State as the law applicable to the arbitration
procedure……………………………………………………
………………………………………………………………..”
“78. The Commission requested the secretariat to
prepare, on the basis of the above discussion, draft
provisions on the territorial scope of application of the
Model Law in general, including suggestions as to
possible  exceptions  of  the  general
scope…………………………………………………………
…………………………………………………………………
…”
-  - 68“80. In   discussing   the   above   proposal,   the
Commission  decided  that,  for  reasons  stated  in
support of the strict territorial criterion (see above,
para 73), the applicability of the Model Law should
depend  exclusively  on  the  place  of  arbitration  as
defined  in  the  Model
Law……………………………………………………………
……………………………………………………………….”
“81. The  Commission  agreed  that  a  provision
implementing that decision, which had to be included
in article 1, should be formulated along the following
lines:  “The provisions of this Law, except articles 8,
9, 35 and 36 apply only if the place of arbitration is
in  the  territory  of  this
State……………………………………………………………
………………………………………………………………..”
71. Similarly, the acceptance of the territorial principle in
UNCITRAL has been duly recognized by most of the experts
and commentators on International Commercial Arbitration.
The  aforesaid  position  has  been  duly  noticed  by  Howard
M. Holtzmann and Joseph E. Beuhaus in “A guide to the
UNCITRAL  Model  Law  on  International  Commercial
Arbitration,  Legislative  History  and  Commentary”.  Dealing
with the territorial scope of application of Article 1(2) at Pages
35 to 38, it is stated:-
“…in  early  discussions  of   this  issue,  Article  27,
dealing with court assistance in taking evidence was
included in the list of exceptions.  At that time, the
draft of that Article provided for such assistance to
-  - 69foreign  arbitrations.   The  provision  was
subsequently changed to its present format, and, by
virtue of Article 1(2), it applies only to arbitrations
in the enacting State.  Assistance in taking evidence
for use in foreign arbitrations can be provided only
under any rules on the question in other laws of the
State.
“The  Commission  adopted  the  principle  that  the
Model  Law  would  only  apply  if  the  place  of
arbitration was in the enacting State – known as the
“territorial  criterion” for  applicability  –  only  after
extensive debate.  The primary alternative position
was  to  add  a  principle  called  the  “autonomy
criterion” which would have applied the Law also to
arbitrations taking place in another country if the
parties had chosen to be governed by the procedural
law of the Model Law State.  Thus, if the autonomy
criterion had been adopted, the parties would have
been  free,  subject  to   restrictions  such  as
fundamental justice, public policy and rules of court
competence, to choose the arbitration law of a State
other than that of the place of arbitration.  The
courts  of  the  Model  Law  State  would  then
presumably  have  provided any  court  assistance
needed by this arbitration, including setting aside,
even though the place of arbitration was elsewhere.
Such a system of party autonomy is envisioned by
the New York  Convention, which recognizes that a
State  may  consider  as  domestic  an  award  made
outside the State, and vice versa.”
“The Commission decided not to adopt the autonomy
criterion.  It was noted that the territorial criterion
was widely accepted by existing national laws, and
that where the autonomy criterion was available it
was rarely used.”
72. We are also unable to accept the submission of the
learned counsel for the appellants that the Arbitration Act,
-  - 701996 does not make seat of the arbitration as the  centre of
gravity of the arbitration. On the contrary, it is accepted by
most  of  the  experts  that  in  most  of  the  National  Laws,
arbitrations  are  anchored  to  the  seat/place/situs  of
arbitration. Redfern in Paragraph 3.54 concludes states that
“the seat of the arbitration is thus intended to be its centre of
gravity.” This, however, does not mean that all the proceedings
of  the  arbitration  have  to  take  place  at  the  seat  of  the
arbitration. The arbitrators at times hold meetings at more
convenient locations. This is necessary as arbitrators often
come from different countries. It may, therefore, on occasions
be convenient to hold some of the meetings in a location which
may be convenient to all. Such a situation was examined by
the  court  of  appeal  in  England  in  Naviera  Amazonica
Peruana S.A. Vs. Compania Internacionale De Seguros Del
    Peru
31
     therein at p.121 it is observed as follows :
“The preceding discussion has been on the basis
that there is only one “place” of arbitration. This will
be the place chosen by or on behalf of the parties;
and  it  will  be  designated  in  the  arbitration
agreement or the terms of reference or the minutes
of proceedings or in some other way as the place or
“seat”  of  the  arbitration.  This  does  not  mean,
however, that the arbitral tribunal must hold all its
meetings  or  hearings  at  the  place  of  arbitration.
31  1988 (1) Lloyd’s Law Reports 116
-  - 71International commercial arbitration often involves
people of many different nationalities, from many
different countries. In these circumstances, it is by
no means unusual for an arbitral tribunal to hold
meetings or even hearings in a place other than the
designated place of arbitration, either for its own
convenience or for the convenience of the parties or
their witnesses…… It may be more convenient for
an  arbitral  tribunal  sitting  in  one  country  to
conduct a hearing in another country, for instance,
for  the  purpose  of  taking  evidence…..  In  fact
circumstances each move of the arbitral tribunal
does not of itself mean that the seat of arbitration
changes. The seat of arbitration remains the place
initially agreed by or on behalf of the parties.”  
73. These  observations  were  subsequently  followed  in
Union of India Vs. McDonnell Douglas Corp.  
32
       
74. It must be pointed out that the law of the seat or place
where the arbitration is held, is normally the law to govern
that  arbitration.  The  territorial  link  between  the  place  of
arbitration  and  the  law  governing  that  arbitration  is  well
established in the international instruments, namely, the New
York Convention of 1958 and the  UNCITRAL Model Law of
1985. It is true that the terms “seat” and “place” are often
used interchangeably. In Redfern and Hunter on International
Arbitration, 5
th
 Edn. (para 3.51), the seat theory is defined
thus: “The concept that an arbitration is governed by the law
32  1993 (3) Lloyd’s Law Reports 48
-  - 72of the place in which it is held, which is the ‘seat’ (or ‘forum’ or
locus arbitri) of the arbitration, is well established in both the
theory and practice of international arbitration. In fact, the
1923  Geneva  Protocol  states: ‘The  arbitral  procedure,
including the constitution of the arbitral tribunal, shall be
governed by  the will of the parties and by the law of the
country in whose territory the arbitration takes place.’ The
New York Convention maintains the reference to ‘the law of the
country where the arbitration took place “(Article V(1)(d))” and,
synonymously to ‘the law of the country where the award is
made’  [Article  V(1)(a)  and  (e)].  The  aforesaid  observations
clearly show that New York Convention continues the clear
territorial link between the place of arbitration and the law
governing that arbitration. The author further points out that
this  territorial  link  is  again  maintained  in  the  Model  Law
which provides in Article 1(2) that “the provision of this law,
except  Articles 8, 9,  35 and 36 apply only if the place of
arbitration  is  in  the  territory  of  the  State”.  Just  as  the
Arbitration Act, 1996 maintains the territorial link between the
place  of  arbitration  and  its  law  of  arbitration,  the  law  in
Switzerland and England also  maintain a clear link between
-  - 73the seat of arbitration and the  lex arbitri. Swiss Law states:
“the provision of this chapter shall apply to any arbitration if
the seat of the arbitral tribunal is in Switzerland and if, at the
time when the arbitration agreement was concluded, at least
one of the parties had neither its domicile nor its habitual
residence in Switzerland.
33
75.  We are of the opinion that the omission of the word
“only” in Section 2(2) of the Arbitration Act, 1996 does not
detract from the territorial scope of its application as embodied
in Article 1(2) of the Model Law. The article merely states that
the Arbitration Law as enacted in a given state shall apply if
the arbitration is in the territory of that State. The absence of
the word “only” which is found in Article 1(2) of the Model Law,
from Section 2(2) of the Arbitration Act, 1996 does not change
the content/import of Section 2(2) as limiting the application
of Part I of the Arbitration Act, 1996 to arbitrations where the
place/seat is in India.
76. For  the  reasons  stated  above,  we  are  unable  to
support the conclusion reached in Bhatia International  and
Venture  Global  Engineering  (supra), that Part I would also
33  See Swiss Private International Law Act, 1987, Chapter 12 Article 176 (1)
-  - 74apply to arbitrations that do not take place in India.
77. India is not the only country which has dropped the
word “only” from its National Arbitration Law. The word “only”
is missing from the Swiss Private International Law Act, 1987
Chapter 12, Article 176 (1)(I). It is also missing in Section 2(1)
of the 1996 Act (U.K.). The provision in Section 2(1) of the U.K.
Act reads as follows :- “2(1) - The provisions of this Part apply
where the seat  of  the arbitration is in England, Wales, or
Northern  Ireland.”  The  aforesaid  sections  clearly  do  not
provide  for  any  exception  which,  in  fact,  are  separately
provided for in Section 2(2) and 2(3) of the Arbitration Act,
1996. Therefore, we are in agreement with the submission
made  by  Mr.Aspi  Chenoy  that   Section  2(2)  is  an  express
parliamentary  declaration/  recognition  that  Part  I  of  the
Arbitration  Act,  1996  applies   to  arbitration  having  their
place/seat in India and does not apply to arbitrations seated
in foreign territories.
78. We  do  not  agree  with  the  learned  counsel  for  the
appellants  that  there  would  be no  need  for  the  provision
contained in Section 2(2) as it would merely be stating the
-  - 75obvious, i.e., the Arbitration Act, 1996 applies to arbitrations
having their place/seat in India. In our opinion, the provisions
have  to  be  read  as  limiting   the  applicability  of  Part  I  to
arbitrations  which  take  place  in India.  If  Section  2(2)  is
construed as merely providing that Part I of the Arbitration
Act,  1996  applies  to  India,  it  would  be  ex  facie
superfluous/redundant. No statutory provision is necessary to
state/clarify that a law made by Parliament shall apply in
India/to arbitrations in India. As submitted by Mr. Sorabjee,
another  fundamental  principle   of  statutory  construction  is
that  courts  will  never  impute  redundancy  or  tautology  to
Parliament. See observations of Bhagwati, J. in Umed Vs. Raj
Singh,
34
 wherein it is observed as follows: “It is well settled
rule  of  interpretation  that   the  courts  should,  as  far  as
possible,  construe  a  statute  so as  to  avoid  tautology  or
superfluity.” The same principle was expressed by Viscount
Simon  in  Hill  Vs.      William  Hill  (Park  Lane)  Ltd.
35
    in  the
following words:-
“It is to be observed that though a Parliamentary
enactment (like Parliamentary eloquence) is capable
of saying the same thing twice over without adding
34  1975 (1) SCC 76 Para 37 at P.103
35  1949 AC 530 at P 546
-  - 76anything to what has already been said once, this
repetition  in  an  Act  of  Parliament  is  not  to  be
assumed. When the legislature enacts a particular
phrase in a statute the presumption is that it is
saying  something  which  has  not  been  said
immediately  before.  The  Rule  that  a  meaning
should, if possible, be given to every word in the
statute implies that, unless there is good reason to
the contrary, the words add something which has
not been said immediately before.”
79. We quote the above in extenso only to demonstrate
that Section 2(2) is not merely stating the obvious. It would
not be a repetition of what is already stated in Section 1(2) of
the Arbitration Act, 1996 which provides that “it extends to
the whole of India”. Since the consolidated Arbitration Act,
1996  deals  with  domestic,  commercial  and  international
commercial  arbitrators,  it   was  necessary  to  remove  the
uncertainty that the Arbitration Act, 1996 could also apply to
arbitrations  which  do  not  take  place  in  India.  Therefore,
Section 2(2) merely reinforces the limits of operation of the
Arbitration Act, 1996 to India.  
80. Another  strong  reason  for   rejecting  the  submission
made by the learned counsel for the appellants is that if Part I
were  to  be  applicable  to   arbitrations  seated  in  foreign
countries, certain words would have to be added to Section
-  - 772(2). The section would have to provide that “this part shall
apply  where  the  place  of  arbitration  is  in  India  and  to
arbitrations having its place out of India.” Apart from being
contrary to the contextual intent and object of Section 2(2),
such  an  interpretation  would  amount  to  a  drastic  and
unwarranted rewriting/alteration of the language of Section
2(2).  As  very  strongly  advocated  by  Mr.  Sorabjee,  the
provisions in the Arbitration Act, 1996 must be construed by
their plain language/terms. It is not permissible for the court
while construing a provision to reconstruct the provision. In
other words, the Court cannot produce a new jacket, whilst
ironing out the creases of the old one. In view of the aforesaid,
we are unable to support the  conclusions recorded by this
Court as noticed earlier.
Is Section 2(2) in conflict with Sections 2(4) and 2(5) -
81. We may now take up the submission of the learned
counsel that Sections 2(4) and 2(5) specifically make Part I
applicable  to  all  arbitrations irrespective  of  where  they  are
held. This submission is again a reiteration of the conclusions
recorded  in  Bhatia  International at  Paragraph  14C  and
-  - 78reiterated in Paragraphs 21 and 22. We have earlier held that
Section  2(2)  would  not  be  applicable  to  arbitrations  held
outside  India.  We  are  unable  to  accept  that  there  is  any
conflict  at  all  between  Section  2(2)  on  the  one  hand  and
Sections 2(4) and 2(5) on the other hand. Section 2(4) provides
as under :
“This  Part  except  sub-section  (1)  of  Section  40,
Sections 41 and 43 shall apply to every arbitration
under any other enactment for the time being in
force,  as  if  the  arbitration  were  pursuant  to  an
arbitration  agreement  and  as  if  that  other
enactment were an arbitration agreement except in
so far as the provisions of this Part are inconsistent
with that other enactment or with any rules made
thereunder.”
82. It is urged by the appellants that Section 2(4) makes
Part  I  applicable  to  “every   arbitration”  under  any  other
enactment,  thereby  makes  it  applicable  to  arbitrations
wherever  held,  whether  in  India  or  outside  India.  In  our
opinion, the submission is devoid of merit.  Section 2(4) makes
Part  I  applicable  to  “every  arbitration  under  any  other
enactment for the time being in force”.  Hence, there must be an
enactment  “for  the  time  being  in  force”  under  which
arbitration takes place. In our opinion, “any other enactment”
-  - 79would in its ordinary meaning contemplate only an Act made
by the Indian Parliament. By virtue of Article 245, “Parliament
may make laws for the whole or any part of India”. Thus it is
not possible to accept that “every arbitration” would include
arbitrations which take place outside India. The phrase “all
arbitrations” has to be read as limited to all arbitrations that
take place in India.  The two sub-sections merely recognize
that apart from the arbitrations which are consensual between
the parties, there may be other types of arbitrations, namely,
arbitrations under certain statutes like Section 7 of the Indian
Telegraph Act, 1886;  or bye-laws of certain Associations  such
as Association of Merchants, Stock Exchanges and different
Chamber of Commerce.  Such arbitrations would have to be
regarded as covered by Part I of the Arbitration Act, 1996,
except in so far as the provisions of Part I are inconsistent
with  the  other  enactment  or   any  rules  made  thereunder.
There seems to be no indication at all in Section 2(4) that can
make Part I applicable to statutory or compulsory arbitrations,
which take place outside India.
83. Similarly,  the  position  under  Section  2(5)  would
-  - 80remain the same.  In our opinion, the provision does not admit
of an interpretation that any of the provisions of Part I would
have any application to arbitration which takes place outside
India.  Section 2(5) reads as under:-
“Subject to the provisions of sub-section (4), and
save insofar as is otherwise provided by any law for
the time being in force or in any agreement in force
between India and any other country or countries,
this Part shall apply to all arbitrations and to all
proceedings relating thereto.”
84. This sub-clause has been made subject to sub-clause
(4) and must be read in the backdrop of Section 2(2) of the
Arbitration  Act,  1996.  Section  2(2)  of  the  aforesaid  Act
provides  that  this  part  shall  apply  where  the  place  of
arbitration is in India. Section 2(5) takes this a step further
and holds that this Part shall apply to all arbitrations and
proceedings relating thereto, where the seat is in India  [a
corollary of Section 2(2)] and if it is not a statutory arbitration
or  subject  of  an  agreement   between  India  and  any  other
country. The exception of statutory enactments was necessary
in terms of the last part of sub-clause (4), which provides for
non application of this Part to statutory arbitrations in case of
inconsistency.  Thus,  barring  the  statutory  enactments  as
-  - 81provided for under Section 2(4) of the  Arbitration Act, 1996
and arbitrations pursuant to international agreement, all other
arbitration proceedings held in India shall be subject to Part I
of the said Act. Accordingly, the phrase ‘all arbitrations’ in
Section 2(5) means that Part I applies to all where Part I is
otherwise applicable. Thus, the provision has to be read as a
part of the whole chapter for its correct interpretation and not
as  a  stand  alone  provision.  There  is  no  indication  in
Section 2(5) that it would apply to arbitrations which are not
held in India.
85. In  view  of  the  aforesaid   observations,  we  have  no
doubt  that  the  provisions  of  Section  2(4)  and  Section  2(5)
would not be applicable to arbitrations which are covered by
Part II of the Arbitration Act, 1996, i.e. the arbitrations which
take place outside India. We, therefore, see no inconsistency
between Sections 2(2), 2(4) and 2(5). For the aforesaid reasons,
we  are  unable  to  agree  with  the  conclusion  in  Bhatia
International that  limiting  the  applicability  of  part  I  to
arbitrations that take place in India, would make Section 2(2)
in conflict with Sections 2(4) and 2(5).
-  - 82Does  Section  2(7)  indicate  that  Part  I  applies  to
arbitrations held outside India?
86. We have earlier noticed the very elaborate submissions
made by the learned senior counsel on the rationale, scope,
and application of Section 2(7), to arbitrations having a seat
outside India.
87. Having considered the aforesaid submissions, we are
of the opinion that the views expressed by the learned counsel
for the appellants are not supported by the provisions of the
Arbitration Act, 1996. Section 2(7) of the Arbitration Act, 1996
reads thus:
“An arbitral award made under this Part shall be
considered as a domestic award.”
88. In our opinion, the aforesaid provision does not, in
any  manner,  relax  the  territorial  principal  adopted  by
Arbitration  Act,  1996.  It  certainly  does  not  introduce  the
concept of a delocalized arbitration into the Arbitration Act,
1996. It must be remembered that Part I of the Arbitration Act,
1996 applies not only to purely domestic arbitrations, i.e.,
where none of the parties are in any way “foreign” but also to
“international commercial arbitrations” covered within Section
-  - 832(1)(f)  held in India. The term “domestic award” can be used
in two senses: one to distinguish it from “international award”,
and the other to distinguish it from a “foreign award”.  It must
also  be  remembered  that  “foreign  award”  may  well  be  a
domestic award in the country in which it is rendered. As the
whole of the Arbitration Act, 1996 is designed to give different
treatments  to  the  awards  made  in  India  and  those  made
outside  India,  the  distinction  is  necessarily  to  be  made
between the terms “domestic awards” and “foreign awards”.
The Scheme of the Arbitration Act, 1996 provides that Part I
shall  apply  to  both  “international  arbitrations”  which  take
place in India as well as “domestic arbitrations” which would
normally take place in India. This is clear from a number of
provisions  contained  in  the  Arbitration  Act,  1996  viz.  the
Preamble  of  the  said  Act;  proviso  and  the  explanation  to
Section 1(2); Sections  2(1)(f); 11(9), 11(12); 28(1)(a) and  28(1)
(b). All the aforesaid provisions, which incorporate the term
“international”,  deal  with  pre-award  situation.   The  term
“international  award”  does  not  occur  in  Part  I  at  all.
Therefore, it would appear that the term “domestic award”
means an award made in India whether in a purely domestic
-  - 84context,  i.e.,  domestically  rendered  award  in  a  domestic
arbitration or in the international context, i.e., domestically
rendered award in an international arbitration.  Both the types
of awards are liable to be challenged under Section 34 and are
enforceable under  Section 36 of the Arbitration Act, 1996.
Therefore, it seems clear that the object of Section 2(7) is to
distinguish the domestic award covered under Part I of the
Arbitration Act, 1996 from the “foreign award” covered under
Part  II  of  the  aforesaid  Act; and  not  to  distinguish  the
“domestic award” from an  “international award” rendered in
India. In other words, the provision highlights, if any thing, a
clear distinction between Part I and Part II as being applicable
in  completely  different  fields  and  with  no  overlapping
provisions.
89. That Part I and Part II are exclusive of each other is
evident also from the definitions section in Part I and Part II.
Definitions contained in Section 2(i)(a) to (h) are limited to
Part I. The opening line which provides “In this part, unless
the context otherwise requires……”, makes this perfectly clear.
Similarly, Section 44 gives the definition of a foreign award for
the  purposes  of  Part  II  (Enforcement  of  Certain  Foreign
-  - 85Awards); Chapter I (New York Convention Awards). Further,
Section 53 gives the interpretation of a foreign award for the
purposes of Part II (Enforcement of Certain Foreign Awards);
Chapter II (Geneva Convention Awards).  From the aforesaid,
the intention of the Parliament is clear that there shall be no
overlapping between Part I and Part II of the Arbitration Act,
1996.  The two parts are mutually exclusive of each other.  To
accept the submissions made by the learned counsel for the
appellants would be to convert the “foreign award” which falls
within Section 44,  into  a domestic award by  virtue  of  the
provisions contained under Section 2(7) even if the arbitration
takes place outside India or is a foreign seated arbitration, if
the law governing the arbitration agreement is by choice of the
parties stated to be the Arbitration Act, 1996.  This, in  our
opinion,  was  not  the  intention   of   the   Parliament.     The
territoriality principle of the Arbitration Act, 1996, precludes
Part I from being  applicable to a foreign seated arbitration,
even if the agreement purports to provide that the Arbitration
proceedings will be governed by the Arbitration Act, 1996.
90. The  additional  submission   of  Mr.  Sorabjee  is  that
Section 9-B of the 1961 Act, which was in negative terms, has
-  - 86been  re-enacted as Section 2(7) of the Arbitration Act, 1996 in
positive terms. Section 9-B of the 1961 Act, was as under:
“9. Saving – Nothing in this Act shall –
……………………………………………….
(b) apply to any award made on an arbitration
agreement governed by the law of India.”
91. We  are  of  the  opinion  that  the  Section  has  been
intentionally deleted, whereas many other provisions of the
1961 Act have been retained in the Arbitration Act, 1996.  If
the provision were to be retained, it would have been placed in
Part II of the Arbitration Act, 1996.  In our opinion, there is no
link between Section 2(7) of the Arbitration Act, 1996, with the
deleted Section 9-B of the 1961 Act.  It was by virtue of the
aforesaid provision that the judgments in Singer Company &
Ors.  (supra) and  ONGC  v.  Western  Company  of  North
America (supra) were rendered.  In both the cases the foreign
awards made outside India were set aside, under the 1940
Act.  By deletion of Section 9-B of the 1961 Act, the judgments
have been rendered irrelevant under the Arbitration Act, 1996.
Having  removed  the  mischief  created  by  the  aforesaid
provision,  it  cannot  be  the  intention  of  the  Parliament  to
reintroduce  it,  in  a  positive  form  as  Section  2(7)  of  the
Arbitration Act, 1996. We, therefore, see no substance in the
-  - 87additional submission of Mr. Sorabjee.
92. We agree with Mr. Salve that Part I only applies when
the seat of arbitration is in India, irrespective of the kind of
arbitration.   Section  2(7)  does  not  indicate  that  Part  I  is
applicable to arbitrations held outside India.
93. We are, therefore, of the opinion that Section 2(7) does
not alter the proposition that Part I applies only where the
“seat” or “place” of the arbitration is in India.
94. It appears to us that provision in Section 2(7) was also
necessary  to  foreclose  a  rare  but  possible  scenario  (as
canvassed by Mr. Gopal Subramanium) where two foreigners
who arbitrate in India, but under a Foreign Arbitration Act,
could  claim  that  the  resulting  award  would  be  a  “nondomestic” award.  In such a case, a claim could be made to
enforce the award in India, even though the seat of arbitration
is also in India.  This curious result has occurred in some
cases  in  other  jurisdictions,   e.g.,  U.S.A.   In  the  case  of
Bergesen Vs.      Joseph  Muller  Corporation
36
   , the Court held
an award made in the State of New York between two foreign
parties is to be considered as a non-domestic award within the
meaning of the New York Convention and its implementing
36  710 F.2d 928
-  - 88legislation. Section 2(7), in our opinion, is enacted to reinforce
the territorial criterion by providing that, when two foreigners
arbitrate  in  India,  under  a   Foreign  Arbitration  Act,  the
provisions  of  Part  I  will apply.   Indian  Courts  being  the
supervisory  Courts,  will  exercise  control  and  regulate  the
arbitration  proceedings,  which  will produce  a “domestically
rendered  international  commercial  award”. It  would  be  a
“foreign award” for the purposes of enforcement in a country
other than India. We, therefore, have no hesitation in rejecting
the submissions made by the learned senior counsel for the
appellants, being devoid of merit.
Party Autonomy
95. Learned  counsel  for  the   appellants  have  submitted
that  Section  2(1)(e),  Section   20  and  Section  28  read  with
Section 45 and Section 48(1)(e) make it clear that Part I is not
limited only to arbitrations which take place in India. These
provisions indicate that Arbitration Act, 1996 is subject matter
centric and not exclusively seat centric. Therefore, “seat” is not
the “centre of gravity” so far as the  Arbitration Act, 1996 is
concerned. We are of the considered opinion that the aforesaid
-  - 89provisions have to be interpreted by keeping the principle of
territoriality at the forefront. We have earlier observed that
Section 2(2) does not make Part I applicable to arbitrations
seated or held outside India.  In view of the expression used in
Section  2(2),  the  maxim  expressum  facit  cessare  tacitum,
would not permit by interpretation to hold that Part I would
also apply to arbitrations held outside the territory of India.
The  expression  “this  Part  shall  apply  where  the  place  of
arbitration is in India” necessarily excludes application of Part I
to arbitration seated or held outside India.  It appears to us
that  neither  of  the  provisions  relied  upon  by  the  learned
counsel for the appellants would make any section of Part I
applicable  to  arbitration  seated  outside  India.  It  will  be
apposite now to consider each of the aforesaid provisions in
turn.    Section 2(1)(e) of the Arbitration Act, 1996 reads as
under:
“2. Definitions
(1)  In  this  Part,  unless  the  context  otherwise
requires –
…………………….
(e)   “Court”   means   the   principal  Civil  Court  of
original jurisdiction in a district, and includes the
High Court in exercise of its ordinary original civil
-  - 90jurisdiction,  having  jurisdiction  to  decide  the
questions  forming  the  subject  matter  of  the
arbitration if the same had been the subject matter
of a suit, but does not include any civil court of a
grade inferior to such principal Civil Court, or any
Court of Small Causes.”
96. We are of the opinion, the term “subject matter of the
arbitration”  cannot be confused with “subject matter  of  the
suit”. The term “subject matter” in Section 2(1)(e) is confined to
Part I. It has a reference and connection with the process of
dispute resolution. Its purpose is to identify the courts having
supervisory control over the arbitration proceedings. Hence, it
refers to a court which would essentially be a court of the seat
of the arbitration process. In  our opinion, the provision in
Section  2(1)(e)  has  to  be  construed  keeping  in  view  the
provisions  in  Section  20  which  give  recognition  to  party
autonomy. Accepting the narrow construction as projected by
the learned counsel for the appellants would, in fact, render
Section   20   nugatory.   In   our  view,  the  legislature  has
intentionally  given  jurisdiction  to  two  courts  i.e.  the  court
which would have jurisdiction where the cause of action is
located and the courts where the arbitration takes place. This
was  necessary  as  on  many  occasions  the  agreement  may
-  - 91provide for a seat of arbitration at a place which would be
neutral to both the parties. Therefore, the courts where the
arbitration  takes  place  would   be  required  to  exercise
supervisory control over the arbitral process. For example, if
the arbitration is held in Delhi, where neither of the parties are
from Delhi, (Delhi having  been chosen as a neutral place as
between a party from Mumbai and the other from Kolkata) and
the tribunal sitting in Delhi passes an interim order under
Section 17 of the Arbitration Act, 1996, the appeal against
such an interim order under Section 37 must lie to the Courts
of Delhi being the Courts having supervisory jurisdiction over
the arbitration proceedings and the tribunal. This would be
irrespective of the fact that the obligations to be performed
under the contract were to be performed either at Mumbai or
at Kolkata, and only arbitration is to take place in Delhi. In
such circumstances, both the Courts would have jurisdiction,
i.e., the Court within whose jurisdiction the subject matter of
the suit is situated and the courts within the jurisdiction of
which the dispute resolution, i.e., arbitration is located.
97. The  definition  of  Section  2(1)(e)  includes  “subject
matter  of  the  arbitration” to  give  jurisdiction  to  the  courts
-  - 92where the arbitration takes place, which otherwise would not
exist. On the other hand, Section 47 which is in Part II of the
Arbitration  Act,  1996  dealing  with  enforcement  of  certain
foreign awards has defined the term “court” as a court having
jurisdiction  over the subject-matter of the award.  This has a
clear  reference  to  a  court  within  whose  jurisdiction  the
asset/person is located, against which/whom the enforcement
of the international arbitral award is sought. The provisions
contained  in  Section  2(1)(e)  being  purely  jurisdictional  in
nature can have no relevance to the question whether Part I
applies to arbitrations which take place outside India.          
98. We now come to Section 20, which is as under:-
 “20. Place of arbitration –
(1) The parties are free to agree on the place of
arbitration.
(2) Failing any agreement referred to in sub-section
(1), the place of arbitration shall be determined
by  the  arbitral  tribunal  having  regard  to  the
circumstances  of  the  case,  including  the
convenience of the parties.
(3) Notwithstanding sub-section (1) or sub-section
(2), the arbitral tribunal may, unless otherwise
agreed  by  the  parties,  meet  at  any  place  it
considers  appropriate  for  consultation  among
its members, for hearing witnesses, experts or
the parties, or for inspection of documents, good
or other property.”  
-  - 93A plain reading of Section 20 leaves no room for doubt
that where the place of arbitration is in India, the parties are
free to agree to any “place” or “seat” within India, be it Delhi,
Mumbai etc. In the absence of the parties’ agreement thereto,
Section  20(2)  authorizes  the  tribunal  to  determine  the
place/seat  of  such  arbitration.  Section  20(3)  enables  the
tribunal to meet at any place for conducting hearings at a
place of convenience in matters such as consultations among
its members for hearing witnesses, experts or the parties.
99. The fixation of the most convenient “venue” is taken
care of by Section 20(3).  Section 20, has to be read in the
context of Section 2(2), which places a threshold limitation on
the applicability of Part I, where the place of arbitration is in
India.   Therefore,  Section  20  would  also  not  support  the
submission of the extra-territorial applicability of Part I, as
canvassed by the learned counsel for the appellants, so far as
purely domestic arbitration is concerned.
100.  True, that in an international commercial arbitration,
having a seat in India, hearings may be necessitated outside
-  - 94India.  In such circumstances, the hearing of the arbitration
will be conducted at the venue fixed by the parties, but it
would not have the effect of changing the seat of arbitration
which would remain in India. The legal position in this regard
is summed up by Redfern and Hunter, The Law and Practice
of International Commercial Arbitration (1986) at Page 69 in
the  following  passage  under  the  heading  “The  Place  of
Arbitration”:-
“The preceding discussion has been on the basis
that there is only one “place” of arbitration.  This
will  be  the  place  chosen  by  or  on  behalf  of  the
parties; and it will be designated in the arbitration
agreement  or  the  terms  of  the  reference  or  the
minutes of proceedings or in some other way as the
place or “seat” of the arbitration.  This does not
mean, however, that the arbitral tribunal must hold
all  its  meetings  or  hearings  at  the  place  of
arbitration.   International  commercial  arbitration
often involves people of many different nationalities,
from  many  different  countries.   In  these
circumstances, it is by no means unusual for an
arbitral tribunal to hold meetings – or even hearings
–  in  a  place  other  than  the  designated  place  of
arbitration, either for its own convenience or for the
convenience of the parties or their witnesses…   It
may  be  more  convenient  for  an  arbitral  tribunal
sitting  in  one  country  to  conduct  a  hearing  in
another country - for instance, for the purpose of
taking evidence…..  In such  circumstances, each
move of the arbitral tribunal does not of itself mean
that the seat of arbitration changes.  The seat of the
arbitration remains the place initially agreed by or
on behalf of the parties.”
-  - 95This,  in  our  view,  is  the  correct  depiction  of  the
practical  considerations  and  the  distinction  between  “seat”
(Section 20(1) and 20(2)) and “venue” (Section 20(3)).  We may
point out here that the distinction between “seat” and “venue”
would be quite crucial in the event, the arbitration agreement
designates  a  foreign  country   as  the  “seat”/”place”  of  the
arbitration and also select the Arbitration Act, 1996 as the
curial law/law governing the arbitration proceedings.  It would
be a matter of construction of the individual agreement to
decide whether:
(i) The designated foreign “seat” would be read as
in fact only providing for a “venue” / “place”
where the hearings would be held, in view of
the choice of  Arbitration Act, 1996 as being
the curial law – OR
(ii) Whether the specific designation of a foreign
seat, necessarily carrying with it the choice of
that  country’s Arbitration /  curial law, would
prevail  over  and  subsume  the  conflicting
selection  choice  by  the  parties  of  the
Arbitration Act, 1996.
-  - 96ONLY if the agreement of the parties is construed to
provide for the “seat” / “place” of Arbitration being in
India  –  would  Part  I  of  the  Arbitration  Act,  1996  be
applicable.  If the agreement is held to provide for a “seat”
/ “place” outside India, Part I would be inapplicable to
the extent inconsistent with the arbitration law of the
seat, even if the agreement purports to provide that the
Arbitration  Act,  1996  shall  govern  the  arbitration
proceedings.
101. How complex the situation can become can be best
demonstrated by looking at some of the prominent decisions
on the factors to be taken into consideration in construing the
relevant provisions of the contract/arbitration clause.
102. In  Naviera  Amazonica  Peruana  S.A.  (supra), the
Court of Appeal, in England considered the agreement which
contained a clause providing for the jurisdiction of Courts in
Lima Peru in the event of judicial dispute and at the same time
contained a clause providing that the arbitration would be
governed by English Law and the procedural law of Arbitration
-  - 97shall be English Law.
103. The  Court  of  Appeal  summarized  the  State  of  the
jurisprudence on this topic.  Thereafter, the conclusions which
arose from the material were summarized as follows:-
“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).”
104. It  is  observed  that  the  problem  about  all  these
formulations,  including  the  third,  is  that  they  elide  the
distinction between the legal localization of an arbitration on
the one hand and the appropriate or convenient geographical
locality for hearings of the arbitration on the other hand.
105.  On the facts of the case, it was observed that since
there was no contest on Law 1 and Law 2, the entire issue
turned  on  Law  3,  “The  law  governing  the  conduct  of  the
arbitration.     This   is   usually   referred   to   as   the  curial  or
procedural  law,  or  the  lex  fori.”  Thereafter,  the  Court
-  - 98approvingly  quoted  the  following  observation  from Dicey  &
Morris on the Conflict of Laws (11
th
 Edition): “English Law
does not recognize the concept of a de-localised” arbitration or
of “arbitral procedures floating in the transnational firmament,
unconnected with any municipal system of law”.  It is further
held that “accordingly every arbitration must have a “seat” or
“locus arbitri” or “forum” which subjects its procedural rules
to the municipal law which is there in  force”.  The  Court
thereafter culls out the following principle “Where the parties
have  failed  to  choose  the  law  governing  the  arbitration
proceedings, those proceedings must be considered, at any
rate prima facie, as being governed by the law of the country
in which the arbitration is held, on the ground that it is the
country most closely connected with the proceedings”.  The
aforesaid classic statement of the Conflict of Law Rules as
quoted in Dicey & Morris on the Conflict of Laws (11
th
 Edition)
Volume 1, was approved by the House of Lords in  James
Miller  &  Partners  Vs.  Whitworth  Street  Estates
    (Manchester) Ltd.
37
   .    Mr. Justice Mustill in the case of Black
Clawson International Ltd. Vs. PapierIrke Waldhof-Aschaf-
37  [1970] 1 Lloyd’s Rep. 269; [1970] A.C.583
-  - 99    fenburg  A.G.
38
,  a  little  later  characterized  the  same
proposition as “the law of the place where the reference is
conducted,  the  lex  fori”.   The  Court  also  recognized  the
proposition that “there is equally no reason in theory which
precludes parties to agree that an arbitration shall be held at a
place or in country X but subject to the procedural laws of Y”.
But it points out that in reality parties would hardly make
such  a  decision  as  it  would   create  enormous  unnecessary
complexities.  Finally it is pointed out that it is necessary not
to  confuse the  legal  “seat”  of  an  arbitration  with  the
geographically convenient place or places for holding hearings.
106. On examination of the facts in that case, the Court of
Appeal observed that there is nothing surprising in concluding
that these parties intended that any dispute under this policy,
should be arbitrated in London.  But it would always be open
to the Arbitral Tribunal to hold hearings in Lima if this were
thought to be convenient, even though the seat or forum of the
arbitration would remain in London.
107. A similar situation was considered by the High Court
38  [1981] 2 Lloyd’s Rep. 446 at P. 453
-  - 10of  Justice  Queen’s  Bench  Division  Technology  and
Construction Court in Braes of Doune Wind Farm (Scotland)
Limited  v  Alfred  McAlpine  Business  Services  Limited
(supra).  In this case the Court considered two applications
relating to the First Award of an arbitrator.  The award related
to  an  EPC  (Engineering,  Procurement  and  Construction)
Contract  dated  4
th
 November,  2005  (“the  EPC  Contract”)
between  the  Claimant  (“the  Employer”)  and  the  Defendant
(“the Contractor”) whereby the Contractor undertook to carry
out works in connection with the provision of 36 wind turbine
generators (the “WTGs”) at a  site some 18 kilometres from
Stirling in Scotland.  This award dealt with enforceability of
the clauses of the EPC Contract which provided for liquidated
damages for delay.  The claimant applied for leave to appeal
against  this  award  upon  a  question  of  law  whilst  the
Defendant sought, in effect, a declaration that the Court had
no jurisdiction to entertain such an application and for leave
to  enforce  the  award.  The  Court  considered  the  issue  of
jurisdiction which arose out of application of Section 2 of the
(English) Arbitration Act, 1996 which provides that - “(1) The
provisions of this Part apply where the seat of the arbitration
-  - 10is in England and Wales or Northern Ireland.”  The Court
notices the singular importance of determining the location of
“juridical  seat”  in  terms  of  Section  3,  for  the  purposes  of
Section 2, in the following  words:-
“I must determine what the parties agreed was
the  “seat”  of  the  arbitration  for  the  purposes  of
Section 2 of the Arbitration Act 1996. This means
by  Section  3  what  the  parties  agreed  was  the
“juridical”  seat.  The  word “juridical”  is  not  an
irrelevant  word  or  a  word  to  be  ignored  in
ascertaining  what  the  “seat”  is.  It  means  and
connotes the administration of justice so far as the
arbitration is concerned. It implies that there must
be a country whose job it is to administer, control or
decide  what  control  there  is  to  be  over  an
arbitration.”
108. Thus, it would be evident that if the “juridical seat” of
the arbitration  was in  Scotland,  the English  Courts  would
have no jurisdiction to entertain an application for leave to
appeal.  The Contractor argued that the seat of the arbitration
was Scotland whilst the Employer argued that it was England.
There were to be two contractors involved with the project.
109.  The material Clauses of the EPC Contract were:
1.4.1. The Contract shall be governed by and construed
in  accordance  with  the  laws of  England  and  Wales  and,
subject to Clause 20.2 (Dispute Resolution), the Parties agree
that  the  courts  of  England  and  Wales  have  exclusive
-  - 10jurisdiction  to  settle  any  dispute  arising  out  of  or  in
connection with the contract.
(a) ... any dispute or difference between the Parties to this
Agreement arising out of or in connection with this
Agreement shall be referred to arbitration.
(b) Any  reference  to  arbitration  shall  be  to  a  single
arbitrator…  and  conducted  in  accordance  with  the
Construction  Industry  Model  Arbitration  Rules
February  1998  Edition,  subject  to  this  Clause
(Arbitration Procedure)…
(c) This arbitration agreement is subject to English Law
and  the  seat of  the  arbitration  shall  be  Glasgow,
Scotland.  Any such reference to arbitration shall be
deemed to be a reference to  arbitration within the
meaning of the Arbitration Act, 1996 or any statutory
re-enactment.”
110. The  Arbitration  was  to be  conducted  under  the
Arbitration Rules known colloquially as the “CIMAR Rules”.
Rule 1.1 of the Rules provided that:
“These Rules are to be read consistently with the
Arbitration  Act  1996  (the  Act),  with  common
expressions having the same meaning.”
Rule 1.6 applied:
-  - 10(a) a single arbitrator is to be appointed, and
(b) the seat of the arbitration is in England and Wales or
Northern Ireland.
111. The court was informed by the parties in arguments that
Scottish Court’s powers of control or intervention would be, at
the  very  least,  seriously  circumscribed  by  the  parties’
agreement in terms as set out in paragraph 6 of the judgment.
It  was  further  indicated  by  the  counsel  that  the  Scottish
Court’s powers of intervention might well be limited to cases
involving  such  extreme  circumstances  as  the  dishonest
procurement of an award.  
112.    In  construing  the  EPC,  the  court  relied  upon  the
principles  stated  by  the  Court  of  Appeal  in  Naviera
Amazonica Peruana SA (supra).
113. Upon consideration of the entire material, the Court
formed the view that it does have jurisdiction to entertain an
application by either party to the contract in question under
Section 69 of the (English) Arbitration Act, 1996. The court
gave the following reasons for the decision:–
(a)  One  needs  to  consider   what,  in  substance,  the
parties agreed was the law of the country which would
-  - 10juridically control the arbitration.
(b) I attach particular importance to Clause 1.4.1. The
parties agreed that essentially the English (and Welsh)
Courts have “exclusive jurisdiction” to settle disputes.
Although this is “subject to” arbitration, it must and
does mean something other than being mere verbiage. It
is a jurisdiction over disputes and not simply a court in
which  a  foreign  award  may  be  enforced.  If  it  is  in
arbitration alone that disputes are to be settled and the
English Courts have no residual involvement in that
process,  this part  of  Clause  1.4.1  is  meaningless  in
practice.  The use of  the word  “jurisdiction” suggests
some form of control.
(c)  The  second  part  of  Clause  1.4.1  has  some  real
meaning if the parties were agreeing by it that, although
the agreed disputes resolution process is arbitration,
the parties agree that the English Court retains such
jurisdiction  to  address  those  disputes  as  the  law  of
England and Wales permits. The Arbitration Act, 1996
permits and requires the Court to entertain applications
under Section 69 for leave to appeal against awards
-  - 10which address disputes  which have been  referred  to
arbitration.  By  allowing  such  applications  and  then
addressing the relevant questions of law, the Court will
settle such disputes; even if the application is refused,
the  court  will  be  applying  its  jurisdiction  under  the
Arbitration  Act,  1996  and   providing  resolution  in
relation to such disputes.
(d)  This  reading  of  Clause  1.4.1  is  consistent  with
Clause 20.2.2 (c) which confirms that the arbitration
agreement  is  subject  to  English  Law  and  that  the
“reference” is “deemed to be a reference to arbitration
within the meaning of the Arbitration Act, 1996.” This
latter expression is extremely odd unless the parties
were agreeing that any reference to arbitration was to be
treated as a reference to which the Arbitration Act, 1996
was to apply. There is no definition in the Arbitration
Act, 1996 of a “reference to arbitration”, which is not a
statutory term of art. The parties presumably meant
something  in  using  the  expression  and  the  most
obvious meaning is that the parties were agreeing that
the Arbitration Act, 1996 should apply to the reference
-  - 10without qualification.
(e)    Looked  at  in  this light,  the  parties’  express
agreement  that  the  “seat”  of arbitration  was  to  be
Glasgow, Scotland must relate to the place in which the
parties  agreed  that  the  hearings  should  take  place.
However, by all the other references the parties were
agreeing that the curial law or law which governed the
arbitral proceedings establish that, prima facie and in
the absence of agreement otherwise, the selection of a
place or seat for an arbitration will determine what the
curial law or “lex fori” or “lex arbitri” will be, we consider
that, where in substance the parties agree that the laws
of  one  country  will  govern  and  control  a  given
arbitration,  the  place  where  the  arbitration  is  to  be
heard will not dictate what the governing or controlling
law will be.
(f)    In the context of this particular case, the fact that,
as both parties seemed to accept in front of me, the
Scottish Courts would have no real control or interest in
the  arbitral  proceedings  other  than  in  a  criminal
context, suggests that they can not have intended that
-  - 10the arbitral proceedings were to be conducted as an
effectively “delocalized” arbitration or in a “transnational
firmament”, to borrow Lord Justice Kerr’s words in the
Naviera Amazonica case.
(g) The CIMAR Rules are not inconsistent with my view.
Their constant references to the Arbitration Act, 1996
suggest  that  the  parties  at  least  envisaged  the
possibility that the Courts of England and Wales might
play some part in policing any arbitration. For instance,
Rule  11.5  envisages  something  called  “the  Court”
becoming  involved  in  securing  compliance  with  a
peremptory order of the arbitrator. That would have to
be the English Court, in practice.”            
114. These observations clearly demonstrate the detailed
examination which is required to be undertaken by the court
to  discern  from  the  agreement  and  the  surrounding
circumstances the  intention of the parties as to whether a
particular place mentioned refers to the “venue” or “seat” of
the arbitration. In that case, the Court, upon consideration of
the entire material, concluded that Glasgow was a reference to
the “venue” and the “seat” of the arbitration was held to be in
-  - 10England. Therefore, there was no supplanting of the Scottish
Law by the English Law, as both the seat under Section 2 and
the  “juridical  seat”  under  Section  3,  were  held  to  be  in
England.  Glasgow  being  only  the  venue  for  holding  the
hearings  of  the  arbitration  proceedings.  The  Court  rather
reiterated the principle that the selection of a place or seat for
an arbitration will determine what the “curial law” or “lex fori”
or “lex arbitri” will be. It was further concluded that where in
substance the parties agreed that the laws of one country will
govern and control a given arbitration, the place where the
arbitration is to be heard  will not dictate what the governing
law or controlling law will be. In view of the above, we are of
the opinion that the reliance placed upon this judgment by
Mr.Sundaram is wholly misplaced.
115. The aforesaid ratio has been followed in Shashoua &
Ors. (supra).  In this case, the Court was concerned with the
construction  of  the  shareholders’  agreement  between  the
parties, which provided that “the venue of the arbitration shall
be  London,  United  Kingdom”.   Whilst  providing  that  the
arbitration  proceedings  should   be  conducted  in  English  in
accordance with ICC Rules and that the governing law of the
-  - 10shareholders’ agreement itself would be the law of India.  The
claimants made an application to the High Court in New Delhi
seeking interim measures of protection under Section 9 of the
Arbitration Act, 1996, prior to the institution of arbitration
proceedings.  Following the commencement of the arbitration,
the  defendant  and  the  joint   venture  company  raised  a
challenge to the jurisdiction of the arbitral tribunal, which the
panel heard as a preliminary issue.  The tribunal rejected the
jurisdictional objection.  The tribunal then made a cost award
ordering  the  defendant  to  pay  $140,000  and  £172,373.47.
The English Court gave leave to the claimant to enforce the
costs award as a judgment.  The defendant applied to the High
Court of  Delhi under Section 34(2)(iv) of the Arbitration Act,
1996 to set aside the costs award.  The claimant had obtained
a  charging  order,  which  had  been  made  final,  over  the
defendant’s property in the UK.  The defendant applied to the
Delhi High Court for an order directing the claimants not to
take any action to execute the charging order,  pending the
final disposal of the Section 34 petition in Delhi seeking to set
aside  the  costs  award.  The  defendant  had  sought
unsuccessfully to challenge the costs award in the Commercial
-  - 11Court under Section 68 and Section 69 of the 1996 Act (U.K.)
and to set aside the order giving leave to enforce the award.
Examining the fact situation in the case, the Court observed
as follows:-
“The  basis  for  the  court’s  grant  of  an  anti-suit
injunction of the kind sought depended upon the
seat of the arbitration.  An agreement as to the seat
of an arbitration brought in the law of that country as
the curial law and was analogous to an exclusive
jurisdiction clause.  Not only was there agreement to
the curial law of the seat, but also to the Courts of
the  seat  having  supervisory  jurisdiction  over  the
arbitration,  so that, by  agreeing  to the seat,  the
parties agreed that any challenge to an interim or
final award was to be made only in the courts of the
place designated as the seat of the arbitration.
Although, ‘venue’ was not synonymous with ‘seat’,
in  an  arbitration  clause  which  provided  for
arbitration to be conducted in accordance with the
Rules of the ICC in Paris (a supranational body of
rules), a provision that ‘the venue of arbitration
shall be London, United Kingdom’ did amount to
the designation of a juridical seat…….”
In Paragraph 54, it is further observed as follows:-
“There was a little debate about the possibility of the
issues  relating  to  the  alleged  submission  by  the
claimants to the jurisdiction of the High Court of
Delhi being heard by that court, because it was best
fitted to determine such issues under Indian Law.
Whilst I found this idea attractive initially, we are
persuaded that it would be wrong in principle to
allow this and that it would create undue practical
problems in any event.  On the basis of what I have
already  decided,  England  is  the  seat  of  the
arbitration and since this carries with it something
-  - 11akin to an exclusive jurisdiction clause, as a matter
of  principle  the  foreign  court  should  not  decide
matters  which  are  for  this  court  to  decide  in  the
context  of  an  anti-suit  injunction.”[emphasis
supplied]
116.     In making the aforesaid observations, the Court
relied on judgments of the Court of Appeal in C Vs.    D
39
   .  Here
the Court of Appeal in England was examining an appeal by
the defendant insurer from the judgment of Cooke, J. granting
an  anti-suit  injunction  preventing  it  from  challenging  an
arbitration award in the U.S. Courts.  The insurance policy
provided “any dispute arising under this policy shall be finally
and fully determined in London, England under the provisions
of the English Arbitration Act, 1950 as amended”.  However, it
was further provided that “this policy shall be governed by and
construed in accordance with the internal laws of the State of
New York….”.  A partial award was made in favour of the
claimants.  It was agreed that this partial award is, in English
Law terms, final as to what it decides.   The defendant sought
the tribunal’s withdrawal of  its findings. The defendant also
intimated its intention to apply to a Federal Court applying US
Federal Arbitration Law governing the enforcement of arbitral
39  [2007] EWCA Civ 1282 (CA)
-  - 11award, which was said to permit “vacatur” of an award where
arbitrators have manifestly disregarded the law.  It was in
consequence of such intimation that the claimant sought and
obtained an interim anti-suit injunction.  The Judge held that
parties had agreed that any proceedings seeking to attack or
set aside the partial award would only be those permitted by
English  Law.   It  was  not,  therefore,  permissible  for  the
defendant to bring any proceedings in New York or elsewhere
to attack the partial award.  The Judge rejected the arguments
to the effect that the choice of the law of New York as the
proper law of the contract amounted to an agreement that the
law of England should not apply to proceedings post award.
The Judge also rejected a further argument that the separate
agreement to arbitrate contained in the Condition V(o) of the
policy  was  itself  governed  by  New  York  Law  so  that
proceedings  could  be  instituted  in  New  York.  The  Judge
granted the claimant a final injunction.  The Court of Appeal
noticed the submission on behalf of the defendant as follows:-
“14.  The main submission of Mr Hirst QC for the
defendant  insurer  was  that  the  judge  had  been
wrong to hold that the arbitration agreement itself
was governed by English law merely because the
seat of the arbitration was London. He argued that
-  - 11the arbitration agreement itself was silent as to its
proper law but that its proper law should follow the
proper law of the contract as a whole, namely New
York law, rather than follow from the law of the seat
of the arbitration namely England. The fact that the
arbitration  itself  was  governed  by  English
procedural law did not mean that it followed that
the arbitration agreement itself had to be governed
by English law. The proper law of the arbitration
agreement was that law with which the agreement
had  the  most  close  and  real  connection;  if  the
insurance policy was governed by New York law, the
law with which the arbitration agreement had its
closest and most real connection was the law of New
York. It would then follow that, if New York law
permitted a challenge for manifest disregard of the
law, the court in England should not enjoin such a
challenge.”
The Court of Appeal held:-
“16.  I shall deal with Mr Hirst's arguments in due
course but, in my judgment, they fail to grapple with
the central point at issue which is whether or not, by
choosing London as the seat of the arbitration, the
parties  must  be  taken  to  have  agreed  that
proceedings  on  the  award  should  be  only  those
permitted by English law. In my view they must be
taken to have so agreed for the reasons given by the
judge. The whole purpose of the balance achieved
by  the  Bermuda  Form  (English  arbitration  but
applying New York law to issues arising under the
policy) is that judicial remedies in respect of the
award should be those permitted by English law
and only those so permitted. Mr Hirst could not say
(and did not say) that English judicial remedies for
lack  of  jurisdiction  on  procedural  irregularities
under sections 67 and 68 of the Arbitration Act,
1996 Were not permitted; he was reduced to saying
that  New  York  judicial  remedies  were  also
permitted.  That,  however,  would  be  a  recipe  for
-  - 11litigation  and  (what  is  worse)  confusion  which
cannot have been intended by the parties. No doubt
New York law has its own judicial remedies for want
of jurisdiction and serious irregularity but it could
scarcely be supposed that a party aggrieved by one
part of an award could proceed in one jurisdiction
and a party aggrieved by another part of an award
could proceed in another jurisdiction. Similarly, in
the case of a single complaint about an award, it
could  not  be  supposed  that  the  aggrieved  party
could complain in one jurisdiction and the satisfied
party be entitled to ask the other  jurisdiction to
declare its satisfaction with the award. There would
be a serious risk of parties rushing to get the first
judgment  or  of  conflicting  decisions  which  the
parties cannot have contemplated.
17. It follows from this that a choice of seat for the
arbitration must be a choice of forum for remedies
seeking to attack the award”……….
117. On the facts of the case, the Court held that the seat
of the arbitration was in England and accordingly entertained
the challenge to the award.  Again in  Union  of  India Vs.
McDonnell Douglas Corp. (supra), the proposition laid down
in  Naviera  Amazonica  Peruana  S.A.  (supra) was reiterated.
In this case, the agreement provided that:-
“The arbitration shall be conducted in accordance
with  the  procedure  provided  in  the  Indian
Arbitration  Act  of  1940  or  any  reenactment  or
modification  thereof.  The  arbitration  shall  be
conducted in the English language. The award of
the Arbitrators shall be made by majority decision
and shall be final and binding on the Parties hereto.
-  - 11The  seat  of  the  arbitration  proceedings  shall  be
London, United Kingdom.”
118.  Construing the aforesaid clause, the Court held as
follows:-
“On the contrary, for the reasons given, it seems to
me that by their agreement the parties have chosen
English law as the law to govern their arbitration
proceedings, while contractually importing from the
Indian Act those provisions of that Act which are
concerned  with  the  internal  conduct  of  their
arbitration and which are not inconsistent with the
choice of English arbitral procedural law.”
119. The same question was again considered by the High
Court of Justice, Queen’s Bench Division, Commercial Court
(England)  in  Sulamerica  CIA  Nacional  de  Seguros  SA  v.
Enesa Engenharia SA – Enesa.
40
 The Court noticed that the
issue in this case depends upon the weight to be given to the
provision in Condition 12 of the Insurance policy that “the seat
of the arbitration shall be London, England.” It was observed
that  this  necessarily  carried  with  it  the  English  Court’s
supervisory jurisdiction over the arbitration process. It was
observed   that   “this   follows   from   the   express   terms   of   the
Arbitration  Act,  1996  and,  in   particular,  the  provisions  of
Section 2 which provide that Part I of the Arbitration Act, 1996
40  [2012 WL 14764].
-  - 11applies where the seat of the arbitration is in England and
Wales  or  Northern  Ireland.  This  immediately  establishes  a
strong connection between the arbitration agreement itself and
the law of England. It is for this reason that recent authorities
have  laid  stress  upon  the  locations  of  the  seat  of  the
arbitration as an important factor in determining the proper
law of the arbitration agreement.” The court thereafter makes
a reference to the observations made in the case of C. vs. D by
the High Court as well as the Court of Appeal. In Paragraph
12, the observations made have particular relevance which are
as under:
“In  the  Court  of  Appeal,  Longmore  LJ,  with
whom the other two Lord Justices agreed, decided
(again  obiter)  that,  where  there  was  no  express
choice of law for the arbitration agreement, the law
with which that agreement had its closest and most
real connection was more likely to be the law of the
seat of arbitration than the law of the underlying
contract. He referred to Mustill J. (as he then was)
in  Black  Clawsen  International  Limited  v
Papierwerke  Waldhof-Aschaffenburg  AG  [1981]  2
LLR 446 as saying that it would be a rare case in
which the law of the arbitration agreement was not
the same as the law of the place or seat of the
arbitration. Longmore LJ also referred to the speech
of Lord Mustill (as he had then become) in Chanel
Tunnel  Group  Limited  vs.  Balfour  Beatty
Construction  Limited  [1993]  1  LLR  291  and
concluded  that  the  Law  Lord  was  saying  that,
although it was exceptional for the proper law of the
underlying contract to be different from the proper
-  - 11law  of  the  arbitration  agreement,  it  was  less
exceptional (or more common) for the proper law of
that underlying  contract  to be different  from  the
curial law, the law of the seat of the arbitration. He
was not expressing any view on the frequency or
otherwise of the law of the arbitration agreement
differing from the law of the seat of the arbitration.
Longmore LJ agreed with Mustill J’s earlier dictum
that it would be rare for the law of the separable
arbitration agreement to be different from the law of
the seat of the arbitration. The reason was “that an
agreement to arbitrate will normally have a closer
and more real connection with the place where the
parties have chose to arbitrate, than with the place
of the law of the underlying contract, in cases where
the parties have deliberately chosen to arbitrate, in
one  place,  disputes  which  have  arisen  under  a
contract governed by the law of another place”.  
       
120. Upon  consideration  of   the  entire  matter,  it  was
observed that - “In these circumstances it is clear to me that
the law with which the agreement to arbitrate has its closest
and most real connection is the law of the seat of arbitration,
namely,  the  law  of  England”.   (Para  14).  It  was  thereafter
concluded by the High Court that English Law is the proper
law of the agreement to arbitrate. (Para 15)
121. The legal position that emerges from a conspectus of all
the decisions, seems to be, that the choice of another country
as the seat of arbitration inevitably imports an acceptance that
the law of that country relating to the conduct and supervision
of arbitrations will apply to the proceedings.
-  - 11122. It  would,  therefore,  follow  that  if  the  arbitration
agreement is found or held to provide for a seat / place of
arbitration  outside  India,  then  the  provision  that  the
Arbitration  Act,  1996  would  govern  the  arbitration
proceedings, would not make Part I of the Arbitration Act,
1996  applicable  or  enable  Indian  Courts  to  exercise
supervisory jurisdiction over the arbitration or the award. It
would only mean that the parties have contractually imported
from the Arbitration Act, 1996, those provisions which are
concerned with the internal conduct of their arbitration and
which are not inconsistent with the mandatory provisions of
the  English  Procedural  Law/Curial  Law.   This  necessarily
follows from the fact that Part I applies only to arbitrations
having their seat / place in India.  
Section 28 -
123. It  was  submitted  by  the  learned  counsel  for  the
appellants  that  Section  28  is another  indication  of  the
intention of the Parliament that Part I of the Arbitration Act,
1996 was not confined to arbitrations which take place in
-  - 11India.  We are unable to accept the submissions made by the
learned counsel for the parties.  As the heading of the Section
28 indicates, its only purpose is to identify the rules that
would be applicable to “substance of dispute”.  In other words,
it deals with the applicable conflict of law rules.  This section
makes a distinction between purely domestic arbitrations and
international commercial arbitrations, with a seat in India.
Section 28(1)(a) makes it clear that in an arbitration under
Part  I to which Section 2(1)(f) does  not apply, there is no
choice but for the Tribunal to decide “the dispute” by applying
the Indian “substantive law applicable to the contract”.  This is
clearly  to  ensure  that  two  or more  Indian  parties  do  not
circumvent  the  substantive  Indian  law,  by  resorting  to
arbitrations.  The provision would have an overriding effect
over any other contrary provision in such contract.  On the
other  hand,  where  an  arbitration  under  Part  I  is  an
international commercial arbitration within Section 2(1)(f), the
parties would be free to agree to any other “substantive law”
and if not so agreed, the “substantive law” applicable would be
as determined by the Tribunal.  The section merely shows that
the legislature has segregated the domestic and international
-  - 12arbitration.  Therefore, to suit India, conflict of law rules have
been suitably modified, where the arbitration is in India.  This
will not apply where the seat is outside India.  In that event,
the  conflict  of  laws  rules  of the  country  in  which  the
arbitration takes place would have to be applied.  Therefore, in
our opinion, the emphasis placed on the expression “where the
place of arbitration is situated in India”, by the learned senior
counsel for the appellants, is not indicative of the fact that the
intention  of  Parliament  was  to  give  an  extra-territorial
operation to Part I of the Arbitration Act, 1996.
Part II
124. It was next submitted by the counsel for
the appellants that even some of the provisions contained in
Part II would indicate that Part I of the Arbitration Act, 1996
would not be limited to the arbitrations which take place in
India.   It  was  pointed  out  that  even  though  Part  II  deals
specifically with recognition and enforcement of certain foreign
awards yet provision is made for annulment of the award by
-  - 12two Courts, i.e., Courts of the country in which the award was
made or the Courts of the country under the law of which the
award was made.  This, according to the learned counsel,
recognizes  the  concurrent  jurisdictions  of  Courts  in  two
countries to set aside the award.  They rely on Section 48(1)(e)
of the Arbitration Act, 1996, which corresponds to Article V(1)
(e) of the New York Convention.  Mr. Sorabjee has emphasised
that both these expressions must necessarily be given effect to
and  no  part  of  the  Act  or  section  can  be  disregarded  by
describing the same as a “fossil”.   This is in reply to the
submission made by Mr. Salve on the basis of the history of
the inclusion of the term “under the law of which” in Article
V(1)(e).  Mr. Sorabjee has emphasised that the word “under the
law of which” were specifically inserted in view of the Geneva
Convention, which limited the jurisdiction to only one Court to
set aside the award namely “the country in which the award
was made.”  He, therefore, submits that this specific intention
must be given effect to.  Not giving effect to the words “under
the law of which the award was made”, will allow many awards
to go untested.  At this stage, Mr. Sorabjee had relied on
Reliance  Industries  Ltd.  (supra). We must notice here that
-  - 12Mr. Sundaram in his submissions has not gone so far as Mr.
Sorabjee.  According to Mr. Sundaram, the jurisdiction of a
domestic Court over an arbitration is neither conferred by the
New York Convention, nor under Part II, since Part II merely
deals  with  circumstances  under  which  the  enforcing  court
may   or   may   not   refuse   to   enforce  the  award.   That
circumstance  includes  annulment  of  proceedings  in  a
competent  court,  i.e.,  the  Court  in  the  country  where  the
arbitration  is  held  or  the  Court  having  jurisdiction  in  the
country under the laws of which the arbitral disputes have
been conducted.  According to Mr. Sundaram, providing two
such situs for the purposes of annulment does not ipso facto
amount to conferring of jurisdiction to annul, on any domestic
Court.   The  provision  only provides  that  if  the annulment
proceedings are before such Courts, the award may not be
enforced.   Therefore,  to  see   if  an  arbitral  award  can  be
annulled by the Court of the country, one has to look at the
jurisdiction  of  such  Courts  under  the  domestic  law.  The
relevance  of  New  York  Convention  and  Article  V(1)(e)  ends
there, with merely recognizing possibility of two Courts having
jurisdiction  to  annul  an  award.   Mr.  Subramanium
-  - 12emphasised that provisions contained in Part II can not be
said to be a complete code as it necessarily makes use of the
provisions  of  Part  I.   Since   Part  I  prescribes  the  entire
procedure for the conduct of an arbitration and Part II is only
to give recognition to certain foreign awards, the two parts
have to be read harmoniously in order to make the Indian
Arbitration Law a complete code.  He submits that Part I can
not be read separately from Part II as certain provisions of Part
I, which are necessary for arbitrations are not covered by Part
II.  He gives an example of the provision contained in Section
45,  which  empowers  the  term  “judicial  authority”  to  refer
parties to arbitration when seized of an action in a matter, in
respect of which parties have made an agreement as referred
to in Section 44.  The aforesaid provision contains a nonobstante clause.  This clearly indicates that it is contemplated
by the legislature that provisions of  Part  I would apply to
matters covered by Part II.  He, therefore, points out that if
Part I were to apply only to arbitrations that take place in
India, then  Indian Courts would not be able to grant any
interim relief under Section 9 to arbitrations which take place
outside India.  He also points out that there are a number of
-  - 12other provisions where Indian Courts would render assistance
in  arbitrations  taking place  outside  India.   Learned  senior
counsel has also pointed out the necessity to read Sections 34
and 48 of the Arbitration Act, 1996 harmoniously.  He points
out that barring Section 34, which involves the challenge to an
award, the other provisions in Part I and Part II are facilitative
in character.
125. We are unable to agree with the submission of the
learned senior counsel that there is any overlapping of the
provisions in Part I and Part II; nor are the provisions in Part II
supplementary to Part I.  Rather there is complete segregation
between the two parts.
126. Generally speaking, regulation of arbitration consists
of  four  steps  (a)  the  commencement of  arbitration;  (b)  the
conduct of arbitration; (c) the challenge to the award; and (d)
the recognition or enforcement of the award. In our opinion, the
aforesaid delineation is self evident in Part I and Part II of the
Arbitration Act, 1996.   Part I  of  the Arbitration Act, 1996
regulates arbitrations at all the four stages. Part II, however,
-  - 12regulates arbitration only in  respect of commencement and
recognition or enforcement of the award.
127. In Part I, Section  8 regulates the  commencement of
arbitration in India, Sections  3, 4, 5, 6, 10 to 26, 28 to 33
regulate the  conduct  of arbitration, Section 34 regulates the
challenge to  the  award,  Sections  35  and  36  regulate  the
recognition and enforcement of the award. Sections 1, 2, 7, 9,
27, 37, 38 to 43 are ancillary provisions that either support
the arbitral process or are structurally necessary. Thus, it can
be seen that Part I deals with all stages of the arbitrations
which take place in India. In Part II, on the other hand, there
are no provisions regulating the conduct of arbitration nor the
challenge to the award. Section 45 only empowers the judicial
authority to refer the parties to arbitration outside India in
pending civil action. Sections 46 to 49 regulate the recognition
and  enforcement of  the  award.  Sections  44,  50  to  52  are
structurally necessary.
128.  Thus,  it  is  clear  that  the  regulation  of  conduct of
arbitration and challenge to an award would have to be done
-  - 12by the courts of the country in which the arbitration is being
conducted.  Such  a  court  is   then  the  supervisory  court
possessed of the power to annul the award. This is in keeping
with the scheme of the international instruments, such as the
Geneva Convention and the New York Convention as well as
the UNCITRAL Model Law. It also recognizes the territorial
principle which gives effect to the sovereign right of a country
to regulate, through its national courts, an adjudicatory duty
being performed in its own country. By way of a comparative
example, we may reiterate the observations made by the Court
of Appeal, England in C Vs.  D  (supra) wherein it is observed
that “it follows from this that a choice of seat for the arbitration
must be a choice of forum for remedies seeking to attack the
award.” In  the  aforesaid  case,   the  Court  of  Appeal  had
approved the observations made in  A  Vs.  B,
41
 wherein it is
observed that:-
“…..an agreement as to the seat of an arbitration is
analogous to  an  exclusive  jurisdiction  clause.  Any
claim   for   a   remedy……as   to   the   validity   of   an
existing interim or final award is agreed to be made
only in the courts of the place designated as the seat
of arbitration.”
41  [2007] 1 Lloyds Report 237
-  - 12129. Having  accepted  the  principle  of  territoriality,  it  is
evident that the intention of the parliament was to segregate
Part I and Part II. Therefore, any of the provisions contained in
Part  I  can  not  be  made  applicable  to  Foreign  Awards,  as
defined  under  Sections  44   and  53,  i.e.,  the  New  York
Convention  and  the  Geneva  Awards.  This  would  be  a
distortion of the scheme of the Act. It is, therefore, not possible
to accept the submission of Mr. Subramanium that provisions
contained  in  Part  II  are  supplementary  to  the  provision
contained in Part I. The Parliament has clearly segregated the
two parts.
Section 45
130. We are unable to accept the submission that the use
of expression “notwithstanding anything contained in Part I, or
in the Code of Civil Procedure, 1908”, in Section 45 of the
Arbitration Act,  1996 necessarily indicates that provisions of
-  - 12Part I would apply to foreign seated arbitration proceedings.
Section 45 falls within Part II which deals with enforcement
proceedings in India and does not deal with the challenge to
the  validity  of  the  arbitral  awards  rendered  outside  India.
Section 45 empowers a judicial authority to refer the parties to
arbitration, on the request made by a party, when seized of an
action in a matter in respect of which the parties have made
an  agreement  referred  to  in   Section  44.   It  appears  that
inclusion of the term “judicial authority” in Sections 5 and 8 of
the Arbitration Act, 1996, has caused much confusion in the
minds  of  the  learned  counsel   for  the  appellants.  In  our
opinion, there is no justification for such confusion.  Such use
of the term “judicial authority”, in Section 5 and Section 8 of
the  Arbitration  Act,  1996,  is  not  a  recognition  by  the
Parliament that Part I will apply to international commercial
arbitrations held outside India. The term “judicial authority” is
a legacy from the 1940 Act. The corresponding provision of
Section 34 of the 1940 Act, which covered purely domestic
arbitrations, between two or more Indian parties, within the
territory  of  India,  also  refers  to  “judicial  authority”.     It   is
nobody’s contention that by using the term “judicial authority”,
-  - 12the Parliament had intended the 1940 Act to apply outside
India.  In our opinion, the term “judicial authority” has been
retained especially in view of policy of least intervention, which
can  not  be  limited  only  to  the Courts.   This  is  clearly in
recognition  of  the  phenomenon  that  the  judicial  control  of
commercial disputes is no longer in the exclusive jurisdiction
of Courts. There are many statutory bodies, tribunals which
would  have  adjudicatory  jurisdiction  in  very  complex
commercial matters. Section 5 would be equally applicable to
such bodies. The use of the term “judicial authority” in no
manner has any reference to arbitrations not held in India    It
is in conformity with Clause (V) of the objects and reasons for
the  Arbitration  Act,  1996,  which  has  been  given  statutory
recognition in Section 5.
131.   The learned senior counsel had also pointed out that
since Section 19 of the Arbitration Act, 1996 clearly provides
that the arbitral tribunal shall not be bound by the Code of
Civil Procedure, 1908, there was no need for the non-obstante
clause.   But   the   reason,   in   our view,  is  discernable  from
Section 3 of the 1961 Act, which also contains a non-obstante
-  - 13clause with reference to the Arbitration Act, 1940.  Section 45
in the Arbitration Act, 1996 is a repetition of the non-obstante
clause in Section 3 in the 1961 Act. It is not unusual for a
consolidating  act  to  retain   the  expressions  used  in  the
previous Acts, which have been consolidated into a form of
Principal Act. A consolidating Act is described in Halsbury’s
law of England, Fourth Edition Reissue, Para 1225 as under:-
“A consolidation Act is a form of principal Act which
presents the whole body  of the statute law on a
subject in complete form, repealing the former Acts.
When drafting a consolidation Act the practice is not
to change the existing wording, except so far as may
be required for  purposes of verbal ‘carpentry’, and
not to incorporate court rulings.  This is known as
‘straight’ consolidation, the product being a form of
declaratory enactment.  The difference between a
consolidating Act and a codifying Act is that the
latter, unlike the former, incorporates common law
rules not previously codified.  It can be determined
from   the   long   title   whether   or   not   an   Act   is   a
consolidation Act.”                     (emphasis supplied)
132.  Similarly, a certain amount of ‘carpentry’ has been
done  in  the  Arbitration  Act, 1996  whilst  consolidating  the
earlier three Acts. Therefore, in section 45 of the Arbitration
Act, 1996, the reference to 1940 Act has been replaced by
-  - 13reference  to Part  I, which now covers  the purely  domestic
arbitrations,  earlier  covered  by  the  1940  and  the  new
additions, i.e. the international commercial arbitrations, which
take place in India.  It appears that the Parliament in order to
avoid any confusion has used the expression “notwithstanding
anything contained in Part I” out of abundant caution, i.e., “ex
abundanti cautela”.  A three judge bench of this Court in R.S.
Raghnath Vs.     State of Karnataka & Anr.
42
   , considering the
nature of the non-obstante clause observed that:-
“11. ………………
But the non-obstante clause need not necessarily
and always be co-extensive with the operative part
so as to have the effect of cutting down the clear
terms  of  an  enactment  and  if  the  words  of  the
enactment  are  clear  and  are  capable  of  a  clear
interpretation  on  a  plain  and  grammatical
construction of the words the non-obstante clause
cannot cut down the construction and restrict the
scope  of  its  operation.   In  such  cases  the  nonobstante  clause  has  to  be read  as  clarifying  the
whole  position  and  must  be  understood  to  have
been  incorporated  in  the  enactment  by  the
legislature by way of abundant caution and not by
way of limiting the ambit and scope of the Special
Rules.”
42  (1992) 1 SCC 335
-  - 13133. We are, therefore, of the opinion that existence of the
non-obstante clause does not alter the scope and ambit of the
field  of  applicability  of  Part I  to  include  international
commercial arbitrations, which take place out of India. We
may further point out that a similar provision existed in the
English Arbitration Act, 1950 and the English Arbitration Act,
1975.  Section 4(1) of the English Arbitration Act, 1950 was
similar to Section 34 of the Arbitration Act, 1940 in India.
Section 1(2) of the English Arbitration Act, 1975 was similar to
Section 3 of the Foreign Awards Act, 1961.
134.  In view  of  the above,  it would not be possible to
accept  the  submission  of   the  learned  counsel  for  the
appellants that the aforesaid non-obstante clause in Section
45  would  indicate  that  provisions  of  Part  I  would  also  be
applicable to arbitrations that take place outside India.
Does Section 48(1)(e) recognize the jurisdiction of Indian
Courts to annul a foreign award, falling within Part II?
135.  Much emphasis has been laid by the learned counsel
for the appellants on the expression that enforcement of a
foreign award may be refused when the award “has been set
-  - 13aside or suspended …..” “under the law of which” that award
was made.  The aforesaid words and expressions appear in
Section 48, which is contained in Part II of the Arbitration Act,
1996 under the title “enforcement of certain foreign awards”.
The Courts in India under Chapter I of Part II of the aforesaid
Act have limited powers to refuse the enforcement of foreign
awards given under the New York Convention. It would be
apposite to notice the provisions of Section 48 at this stage,
which are as under:-
“48.Conditions for enforcement of foreign awards.-
(1) Enforcement of a foreign award may be refused,
at  the  request  of  the  party  against  whom  it  is
invoked, only if that party furnishes to the court
proof that----
(a) the parties to the agreement referred to in
section 44 were, under the law applicable to
them,   under   some   incapacity,   or   the   said
agreement is not valid under the law to which
the parties have  subjected it or,  failing any
indication  thereon,  under  the  law  of  the
country where the award was made; or
(b)  the  party  against  whom  the  award  is
invoked  was  not  given  proper  notice  of  the
appointment of the arbitrator or of the arbitral
proceedings  or  was  otherwise  unable  to
present his case; or
(c)   the   award   deals   with   a   difference   not
contemplated by or not falling within the terms
-  - 13of the submission to arbitration, or it contains
decisions on matters beyond the scope of the
submission to arbitration.
Provided that, if the decisions on matters
submitted to arbitration can be separated from
those not so submitted, that part of the award
which  contains  decisions  on  matters
submitted to arbitration may be enforced; or
(d) 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 ; or
(e) the award has not yet become binding on
the parties, or has been set aside or suspended
by  a  competent  authority  of  the  country  in
which, or under the law of which, that award
was made.
(2) Enforcement of an arbitral award may also be
refused if the court finds that-
(a) the subject -matter of the difference is not
capable of settlement by arbitration under the
law of India; or
(b)  the  enforcement  of  the  award  would  be
contrary to the public policy of India.
Explanation.----Without  prejudice  to  the
generality of clause (b), it is hereby declared, for the
avoidance of any doubt, that an award is in conflict
with the public policy of India if the making of the
award  was  induced  or  affected  by  fraud  or
corruption.
(3)  If  an  application  for  the  setting  aside  or
suspension  of  the  award  has  been  made  to  a
-  - 13competent authority referred to in clause (e) of subsection (1) the Court may, if it considers it proper,
adjourn  the  decision  on   the  enforcement  of  the
award and may also , on the application of the party
claiming enforcement of the award, order the other
party to give suitable security.”
136.  The party which seeks to resist the enforcement of the
award has to prove one or more of the grounds set out in
Section 48(1) and (2) and/or the explanation of sub-section
(2).  In these proceedings, we are, however, concerned only
with the interpretation of the terms “country where the award
was made” and “under the law of which the award was made”.
The provisions correspond to Article V(1)(e) of the New York
Convention, which reads as under:-
“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, proof that:
…………………………….
(e) the award has not yet become binding on the
parties, or has been set aside or suspended by a
competent authority of the country in which, or
under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award
may also be refused if the competent authority in
-  - 13the country where recognition and enforcement is
sought finds that:
(a) the  subject  matter  of  the  difference  is  not
capable of settlement by arbitration under the
law of that country; or
(b)  the  recognition  or  enforcement  of  the  award
would be contrary to the public policy of that
country.
137.  The aforesaid Article of the New York Convention has
been  bodily  lifted  and  incorporated  in  the  Arbitration  Act,
1996 as Section 48.
138.  Thus, the intention of the legislature is clear that the
Court may refuse to enforce the foreign award on satisfactory
proof of any of the grounds mentioned in Section 48(1), by the
party resisting the enforcement of the award.  The provision
sets out the defences open to the party to resist enforcement of
a  foreign  award.   The  words  “suspended  or  set  aside”,  in
Clause (e) of Section 48(1) can not be interpreted to mean that,
by  necessary  implication,  the   foreign  award  sought  to  be
enforced in India can also be challenged on merits in Indian
Courts. The provision merely recognizes that courts of the two
nations which are competent to annul or suspend an award.
-  - 13It does not  ipso facto confer jurisdiction on such Courts for
annulment  of  an  award  made  outside  the  country.   Such
jurisdiction  has  to be  specifically  provided,  in the  relevant
national  legislation  of  the   country  in  which  the  Court
concerned  is  located.   So  far  as  India  is  concerned,  the
Arbitration Act, 1996 does not confer any such jurisdiction on
the Indian Courts to annul an international commercial award
made  outside  India.   Such  provision  exists  in  Section  34,
which is placed in Part I.  Therefore, the applicability of that
provision  is  limited  to  the  awards  made  in  India.   If  the
arguments  of  the  learned  counsel  for  the  appellants  are
accepted, it would entail incorporating the provision contained
in Section 34 of the Arbitration Act, 1996, which is placed in
Part I of the Arbitration Act, 1996 into Part II of the said Act.
This is not permissible as the intention of the Parliament was
clearly to confine the powers of the Indian Courts to set aside
an  award  relating  to  international  commercial  arbitrations,
which take place in India.
139.  As noticed above, this section corresponds to Article
V(1)(e) of the New York Convention. A reading of the Article
-  - 13V(1)(e) [Section 48(1)(e)] makes it clear that only the courts in
the country “in which the award was made” and the courts
“under the law of which the award was made” (hereinafter
referred  to  as  the  “first   alternative”  and  the  “second
alternative”  respectively) would  be  competent  to
suspend/annul  the  New  York  Convention  awards.  It  is
clarified that Section 48(1)(e) is only one of the defences on the
basis of which recognition and enforcement of the award may
be refused. It has no relevance to the determination of the
issue as to whether the national law of a country confers upon
its courts, the jurisdiction to annul the awards made outside
the  country.  Therefore,  the  word  “suspended/set  aside”  in
Section  48(1)(e)  cannot  be  interpreted  to  mean  that,  by
necessary  implication,  the  foreign  awards  sought  to  be
enforced in India can also be challenged on merits in Indian
Courts.  The provision only means that Indian Courts would
recognize as a valid defence in the enforcement proceedings
relating to a foreign award, if the Court is satisfied that the
award has been  set aside in one of the two countries, i.e., the
“first alternative” or the “second alternative”.
-  - 13140.  Mr.  Sundaram  had  submitted  that  the  two  countries
identified  in  “alternative  one”  and  “alternative  two”,  would
have  concurrent  jurisdiction  to  annul  the  award.   In  our
opinion, interpreting the provision in the manner suggested by
Mr. Sundaram would lead to very serious practical problems.
141.  In this context, it would be relevant to take note of
some of the observations made by Hans Smit, Professor of
Law, Columbia University in the Article titled “Annulment and
Enforcement  of  International  Arbitral  Awards”.  The  author
points out the reasons for incorporating the second forum for
annulment. He states that –
“While,  therefore,  there  appears  to  be  no
justification,  based  in   reason  and  principle,  for
providing  for  an  exception  to  the general  rule of
recognition and enforcement for the forum at the
place of arbitration, the drafters of the Convention
compounded their error by providing for two fora for
an annulment action. For Article V(1)(e) envisages
that an annulment action may be brought “in the
country in which….the award was made” or “in the
country….under the law of which the award was
made.”  The  disjunctive  used  in  the  Convention’s
text naturally raises the question of whether the
second forum is available only if the first is not or
whether  the  party  seeking  annulment  has  the
option of selecting either or even to try its luck in
both. The legislative history of the Convention sheds
-  - 14illuminating light on the issue.
The  text  of  Article  V(1)(e)  originally  proposed
acknowledge  only  the  bringing  of  an  annulment
action in the place in which the award was made.
One of the delegates at the Conference devoted to
the drafting of the Convention raised the question of
what would happen  if the forum at the place of
arbitration would refuse to entertain an annulment
action.  The  obviously  correct  answer  to  that
question would have been that, in that case, no
annulment action could be brought and that the
happy consequence would be that only denial of
recognition and enforcement on grounds specified in
the  Convention  would  be  possible.  Instead,  the
drafters  of  the  Convention  provided  for  an
alternative forum in the country the arbitration laws
of which governed the arbitration. That choice was
both most fateful and most regrettable.”              
142.  These  observations  militate  against  the  concurrent
jurisdiction  submission  of  Mr.Sundaram.  The  observations
made by the learned author, as noticed above, make it clear
that the “second alternative” is an exception to the general
rule. It was only introduced to make it possible for the award
to be challenged in the court of the “second alternative”, if the
court  of  the  “first  alternative”  had  no  power  to  annul  the
award,  under  its  national  legislation.  In  our  opinion,  the
disjunction  would  also  tend  to  show  that  the  “second
-  - 14alternative” would be available only if the first is not. Accepting
the  submission  made  by  Mr.Sundaram,  would  lead  to
unnecessary confusion.  There can be only one Court with
jurisdiction to set aside the award.  There is a public policy
consideration apparent, favouring the interpretation that, only
one Court would have jurisdiction to set aside the arbitral
award.  This public policy aspect was considered by the Court
of Appeal in England in the case of  C Vs.  D  (supra).  The
observation of the Court of Appeal in Paragraph 16 of the
judgment  has  already  been  reproduced  earlier  in  this
judgment.
143. It was pointed out by the Court of Appeal that accepting
more than one jurisdiction for judicial remedies in respect of
an  award  would  be  a  recipe  for  litigation  and  confusion.
“Similarly, in the case of a single complaint about an award, it
could not be supposed that the aggrieved party could complain
in one jurisdiction and the satisfied party be entitled to ask
the  other  jurisdiction  to  declare  its  satisfaction  with  the
award”.
-  - 14144.  The creation of such a situation is apparent from the
judgment  of  this  Court  in  Venture  Global  Engineering
(supra).  In the aforesaid judgment, the award was made by
the  London  Court  of  International  Arbitration  on  3
rd
 April,
2006. Respondent No.1, on 14
th
 April, 2006, filed a petition to
recognize  and  enforce  the  award  before  the  United  States
District  Court,  Eastern  District   Court   of   Michigan,   in   the
United  States  of  America  (for short  the  ‘US  Court’).  The
appellant entered appearance to defend this proceeding before
the US Court by filing a cross petition. In the said petition, it
took objection to the enforcement of the award, which had
directed  transfer  of  shares. The  objection  was  that  the
direction  was  in  violation  of   Indian  laws  and  regulations,
specifically the Foreign Exchange Management Act (in  short
the  ‘FEMA’)  and  its  notifications.  Two  weeks  later  on
28
th
 April, 2006, the appellant filed a suit in the City Civil
Court,  Secunderabad  seeking   declaration  to  set  aside  the
award and permanent injunction on the transfer of shares. On
15
th
 June,  2006, the District Court passed an ad interim ex
parte order of injunction, inter alia,  restraining respondent
No.1 for seeking or effecting the transfer of shares either under
-  - 14the terms of the award or otherwise. Respondent No.1 filed an
appeal challenging the said order before the High Court of
Andhra Pradesh.  The High Court admitted the appeal and
directed interim suspension of the order of the District Judge,
but made it clear that “respondent No.1 would not affect the
transfer of shares till further orders”.
145.  On  13
th
 July,  2006,  in  response  to  the  summons,
respondent No.1 appeared in the court and filed a petition
under Order VII, Rule 11 for rejection of the plaint. The trial
court by its order dated 28
th
 December, 2006, allowed the said
application and rejected the plaint of the appellant. On 27
th
February, 2007, the High Court dismissed the appeal holding
that the award cannot be challenged even if it is against public
policy  and  in  contravention  of statutory  provisions.  The
judgment of the High Court was challenged in appeal before
this Court.  The appeal was allowed. It was held as follows:
“31. On  close  scrutiny  of  the  materials  and  the
dictum laid down in the three-Judge Bench decision
in Bhatia International we agree with the contention
of Mr. K.K. Venugopal and hold that paras 32 and
35 of  Bhatia  International make it clear that the
-  - 14provisions of Part I of the Act would apply to all
arbitrations  including  international  commercial
arbitrations and to all proceedings relating thereto.
We further hold that where such arbitration is held
in India, the provisions of Part I would compulsorily
apply and parties are free to deviate to the extent
permitted by the provisions of Part I. It is also clear
that even in the case 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. We are also of the view that such an
interpretation does not lead to any conflict between
any of the provisions of the Act and there is no
lacuna as such. The matter, therefore, is concluded
by  the  three-Judge  Bench  decision  in  Bhatia
International
33. The very fact that the judgment holds that it
would  be  open  to  the   parties  to  exclude  the
application of the provisions of Part I by express or
implied agreement, would mean that otherwise the
whole of Part I would apply. In any event, to apply
Section  34 to foreign international  awards would
not be inconsistent with Section 48 of the Act, or
any other provision of Part II as a situation may
arise, where, even in respect of properties situate in
India  and  where  an  award  would  be  invalid  if
opposed  to  the  public  policy  of  India,  merely
because  the  judgment-debtor  resides  abroad,  the
award can be enforced against properties in India
through  personal  compliance  of  the  judgmentdebtor and by holding out the threat of contempt as
is being sought to be done in the present case. In
such  an  event,  the  judgment-debtor  cannot  be
deprived of his right under Section 34 to invoke the
public policy of India, to set aside the award. As
observed earlier, the public policy of India includes
— (a) the fundamental policy of India; or (b) the
interests of India; or (c) justice or morality; or (d) in
addition,  if  it  is  patently  illegal.  This  extended
definition of public policy can be bypassed by taking
-  - 14the award to a foreign country for enforcement.
37. In view of the legal position derived from Bhatia
International we are unable to accept Mr. Nariman's
argument. It is relevant to point out that in this
proceeding, we are not deciding the merits of the
claim of both parties, particularly, the stand taken
in the suit filed by the appellant herein for setting
aside the award. It is for the court concerned to
decide  the  issue  on  merits  and  we  are  not
expressing  anything  on  the  same.  The  present
conclusion is only with regard to the main issue
whether the aggrieved party is entitled to challenge
the foreign award which was passed outside India in
terms of Sections 9/34 of the Act. Inasmuch as the
three-Judge  Bench  decision  is  an  answer  to  the
main  issue  raised,  we  are  unable  to  accept  the
contra view taken in various decisions relied on by
Mr. Nariman. Though in  Bhatia International1 the
issue relates to filing a petition under Section 9 of
the Act for interim orders the ultimate conclusion
that Part I would apply even for foreign awards is an
answer to the main issue raised in this case.
42. The learned Senior Counsel for the appellant
submitted  that  the  first  respondent  Satyam
Computer Services Ltd. could not have pursued the
enforcement  proceedings  in  the  District  Court  in
Michigan, USA in the teeth of the injunction granted
by the courts in India which also, on the basis of
the comity of courts, should have been respected by
the District Courts in Michigan, USA. Elaborating
the same, he further submitted that the injunction
of the trial court restraining the respondents from
seeking  or  effecting  the  transfer  of  shares  either
under the terms of the award or otherwise was in
force  between  15-6-2006 and  27-6-2006.  The
injunction of the High Court in the following terms -
“the appellant (i.e. Respondent 1) shall not effect the
transfer  of  shares  of  the  respondents  pending
further orders” was in effect from 27-6-2006 till 28-
-  - 1412-2006. The judgment of the US District Court was
on 13-7-2006 and 31-7-2006 when the award was
directed to be enforced as sought by Respondent 1,
notwithstanding the injunction to the effect that the
appellant (Respondent 1 herein) “shall not effect the
transfer  of  shares  of  the  respondents  pending
further orders”. The first respondent pursued his
enforcement  suit  in  Michigan  District  Courts  to
have a  decree passed  directing — “…  VGE shall
deliver to Satyam or its designee, share certificates
in a form suitable for immediate transfer to Satyam
evidencing all of the appellant's ownership interest
in Satyam Venture Engineering Services (SVES), the
party's joint venture company”. Further, “VGE (the
appellant herein) shall do all that may otherwise be
necessary  to  effect  the  transfer  of  its  ownership
interest in SVES to Satyam (or its designee)”. It is
pointed out that obtaining this order by pursuing
the case in the US District Courts, in the teeth of
the prohibition contained in the order of the High
Court, would not only be a contempt of the High
Court but would render all proceedings before the
US courts a brutum fulmen, and liable to be ignored.
Though Mr. R.F. Nariman has pointed out that the
High  Court  only  restrained  the  respondent  from
effecting  transfer  of  the  shares  pending  further
orders by the City Civil Court, Secunderabad, after
the orders of the trial court as well as limited order
of the High Court, the first respondent ought not to
have proceeded with the issue before the District
Court,  Michigan  without  getting  the  interim
orders/directions vacated.
47. In terms of the decision in Bhatia International
we hold that Part I of the Act is applicable to the
award in question even though it is a foreign award.
We have not expressed anything on the merits of
claim of both the parties. It is further made clear
that  if  it  is  found  that the  court  in  which  the
appellant has filed a petition challenging the award
is not competent and having jurisdiction, the same
shall be transferred to the appropriate court. Since
-  - 14from the inception of ordering notice in the special
leave petition both parties were directed to maintain
status  quo  with  regard  to  transfer  of  shares  in
issue, the same shall be maintained till the disposal
of the suit. Considering the nature of dispute which
relates to an arbitration award, we request the court
concerned to dispose of the suit on merits one way
or the other within a period of six months from the
date of receipt of copy of this judgment. Civil appeal
is allowed to this extent. No costs.”
146. With these observations, the matter was remanded back
to  the  trial  court  to  dispose  of  the  suit  on  merits.  The
submissions  made  by  Mr.  K.K.Venugopal,  as  noticed  in
paragraph 42, epitomize the kind of chaos which would be
created  by  two  court  systems,   in  two  different  countries,
exercising  concurrent  jurisdiction  over  the  same  dispute.
There would be a clear risk of conflicting decisions. This would
add  to  the  problems  relating   to  the  enforcement  of  such
decisions.   Such  a  situation  would  undermine  the  policy
underlying the New York Convention or the UNCITRAL Model
Law. Therefore, we are of the opinion that appropriate manner
to interpret the aforesaid provision is that “alternative two” will
become available only if “alternative one” is not available.  
147.   The expression “under the law” has also generated a
-  - 14great deal of controversy as to whether it applies to “the law
governing the substantive contract” or “the law governing the
arbitration agreement” or limited only to the procedural laws
of the country in which the award is made.    
148.   The consistent view of the international commentators
seems  to  be  that  the  “second   alternative”  refers  to  the
procedural law of the arbitration rather than “law governing
the arbitration agreement” or “underlying contract”.  This is
even otherwise evident from the phrase “under the law, that
award was made”, which refers to the process of making the
award  (i.e.,  the  arbitration  proceeding),  rather  than  to  the
formation or validity of the arbitration agreement.
149.  Gary  B.  Born  in  his  treatise  titled  International
Commercial Arbitration takes the view in Chapter 21 that the
correct interpretation of Article V(1)(e)’s “second alternative” is
that it relates exclusively to procedural law of the arbitration
which produced an award and not to other possible laws (such
as  the  substantive  law  governing  the  parties  underlying
dispute or governing the parties’ arbitration agreement). He
further  notices  that  courts  have  generally  been  extremely
-  - 14reluctant to conclude that the parties have agreed upon a
procedural  law  other  than   that  of  the  arbitral  seat.
Consequently, according to Born, although it is theoretically
possible for an award to be subject to annulment outside the
arbitral seat, by virtue of Article V(1)(e)’s “second alternative”,
in  reality  this  is  a  highly   unusual  “once-in-a-blue-moon”
occurrence.  He  further  notices  that  a  number  of  national
courts have considered the meaning of Article V(1)(e)’s “second
alternative”. Many, but not all, courts have concluded that the
alternative refers to “the procedural law of arbitration”, rather
than  the  “substantive  law  applicable  to  the  merits  of  the
parties’ dispute or to the parties’ arbitration agreement.” In
our opinion, the views expressed by the learned author are in
consonance with the scheme and the spirit in which the New
York Convention was formulated. The underlying motivation of
the   New   York   Convention   was   to   reduce   the   hurdles   and
produce a uniform, simple and speedy system for enforcement
of foreign arbitral award. Therefore, it seems to be accepted by
the commentators and the courts in different jurisdictions that
the  language  of  Article  V(1)(e)  referring  to  the  “second
alternative” is to the country applying the procedural law of
-  - 15arbitration if different from the arbitral forum and not the
substantive law governing the underlying contract between the
parties.      
Case Law –
150. At this stage, it would be appropriate to consider the
manner in which the expression “under the law” has been
interpreted judicially in different jurisdictions.
151. The aforesaid expression came up for consideration in the
case  of  Karaha  Bodas  Co.  LLC  Vs.  Perusahaan
    Pertambangan      Minyak Dan Gas Bumi Negara,
43
    the Federal
Court  in  the  U.S.  considered  the  provisions  contained  in
Article V(1)(e) and observed as follows:-
“Article  V(1)(e) of the Convention provides that  a
court  of  secondary  jurisdiction  may  refuse  to
enforce an arbitral award if it “has been set aside or
suspended by a competent authority of the country
in which, or under the law of which, that award was
made.”  Courts have held that the language, “the
competent authority of the country …… under the
law  of  which,  that  award  was  made”  refers
exclusively to procedural and not substantive law,
and more precisely, to the regimen or scheme of
arbitral procedural law under which the arbitration
43  335 F.3d 357
-  - 15was  conducted,  and  not  the  substantive  law…..
applied in the case.”……………..
“Under  the  New  York  Convention,  an  agreement
specifying  the  place  of  the  arbitration  creates  a
presumption that the procedural law of that place
applies  to  the  arbitration.   Authorities  on
international  arbitration  describe  an  agreement
providing that one country will be the site of the
arbitration but the proceedings will be held under
the  arbitration  law  of  another  country  by  terms
such as “exceptional”; “almost unknown”; a “purely
academic invention”; “almost never use in practice”;
a  possibility  “more  theoretical  than  real”;  and  a
“once–in-a-blue-moon  set  of  circumstances.”
Commentators note that such an agreement would
be complex, inconvenient, and inconsistent with the
selection  of  a  neutral  forum  as  the  arbitral
forum……..”
152. Similarly, in the case of Karaha Bodas Co. LLC (Cayman
Islands)  Vs.  Perusahaan  Pertambangan  Minyak  Dan  Gas
    Bumi  Negara  –  Pertamina  (Indonesia),
44
    the aforesaid legal
proposition is reiterated. In this case, again the Hong Kong
Court considered Article V(1)(e) of the Convention at length.
This was a case where the substantive law applicable to the
contract was Indonesian law and the country of the arbitration
i.e. seat of arbitration as per the arbitration agreement was
Switzerland.  It was contended relying on the second leg of
44  Yearbook Comm. Arb’n Vol. XXVIII )2003) Page 752
-  - 15Article V(1)(e) that the law under which the award had been
made was Indonesian law and therefore Pertamina’s challenge
in Indonesia was valid.  This was rejected.  It was held that
Article V(1)(e) referred to the procedural or curial law and that
because the seat of the arbitration was in Switzerland, the lex
arbitri or  the  curial  or  procedural  law applicable  to  the
arbitration was Swiss law.  Therefore, only the Swiss Courts
had jurisdiction to set aside the award.
153.  In  International  Electric  Corporation Vs.  Bridas
    Sociedad  Anonima  Petroleva, Industrial  Y  Commercial,
45
 
the New York Court held that the italicised words referred to
the  procedural law governing the arbitration, and not to the
substantive law governing the agreement between the parties,
since  the  situs  of  arbitration  is  Mexico,  the  governing
procedural  law that  of  Mexico,  only  Mexico  Courts  have
jurisdiction under the Convention to vacate the award.
154. Redfern and Hunter (supra) at paragraph 11.96 state that
the court which is competent to sustain or set aside an award
is the court of the country in “alternative one” or “alternative
45  745 F Supp 172, 178 (SDNY 1990)
-  - 15two”. The authors, however, further state that “this Court will
almost  invariably  be  the  national  court  at  the  seat  of  the
arbitration”. They point out that the prospect of an award
being set aside under the procedural law of a State other than
that at the seat of arbitration is unlikely. They point out  that
an  ingenious  (but  unsuccessful)  attempt  was  made  to
persuade the US District Court to set aside an award made in
Mexico, on the basis that the reference to the law under which
that award was made was a reference to the law governing the
dispute and not to the procedural law (Paragraph 11.96).  The
Learned  Authors  had  made   a  reference  to  the  case
International  Standard   Electric  Corp.  (US) Vs. Bridas
    Sociedad  Anonima  Petrolera  (Argentina).
46
     The  Court
rejected  the  aforesaid  argument  with  the  following
observations:-
“Decisions of foreign courts under the Convention
uniformly  support  the  view  that  the  clause  in
question  means  procedural and  not  substantive
(that is, in most cases, contract law)….
Accordingly, we hold that the contested language in
Article  V(1)(e)  of  the  Convention……refers
exclusively to  procedural  and  not substantive law,
46  (1992) VII Ybk Comm Arb 639
-  - 15and  more precisely  to  the   regimen   or   scheme   of
arbitral procedural law under which the arbitration
was conducted.”
155. The Court went on to hold that since the quorum of
arbitration  was  Mexico,  only  the  Mexican  court  had
jurisdiction to set aside the award.
156. The correct position under the New York Convention is
described very clearly and concisely by Gary B. Born in his
book  International  Commercial  Arbitration  (Kluwer  Law
International, Vol. I), Chapter X Page 1260 as follows :
“This  provision  is  vitally  important  for  the
international  arbitral   process,  because  it
significantly restricts the  extent of national court
review of international arbitral awards in annulment
actions, limiting such review only to the courts of
the arbitral seat (that is, the state where the award
is  made  or  the  state  whose  procedural  law  is
selected by the parties to govern the arbitration). In
so  doing,  the  Convention  ensures  that  courts
outside the arbitral seat may not purport to annul
an international award, thereby materially limiting
the role of such courts in supervising or overseeing
the procedures utilized in international arbitrations.
At the same time, the New York Convention also
allows  the courts of the arbitral seat wide powers
with  regard  to the annulment  of  arbitral  awards
made locally. The Convention generally permits the
courts  of  the  arbitral  seat  to  annul  an  arbitral
-  - 15award on any grounds available under local law,
while  limiting  the  grounds  for  non-recognition  of
Convention awards in courts outside the  arbitral
seat  to  those  specified  in  Article  V  of  the
Convention. This has the effect of permitting the
courts  of  the  arbitral  seat  substantially  greater
scope  than  courts  of  other  states  to  affect  the
conduct or outcome of an international arbitration
through the vehicle of annulment actions. Together
with the other provisions of Articles II and V, this
allocation  of  annulment  authority  confirms  the
(continued) special importance of the arbitral seat in
the international arbitral process under the New York
Convention.”                                    
( emphasis supplied)
157.  In  our  opinion,  the  aforesaid  is  the  correct  way  to
interpret the expressions “country where the award was made”
and  the  “country  under  the  law  of  which  the  award  was
made”.  We  are  unable  to  accept  the  submission  of  Mr.
Sundaram that the provision confers concurrent jurisdiction
in both the fora. “Second alternative” is available only on the
failure of the “first alternative”. The expression under the law
is the reference only to the  procedural law/curial law of the
country in which the award was made and under the law of
which   the   award   was   made.   It   has   no   reference   to   the
substantive law of the contract between the parties. In such
view  of  the matter,  we have  no hesitation in rejecting the
-  - 15submission of the learned counsel for the appellants.    
158. At this stage, we may notice that in spite of the aforesaid
international understanding of the second limb of Article V(1)
(e), this  Court has proceeded on a number of occasions to
annul an award on the basis that parties had chosen Indian
Law to govern the substance of their dispute.  The aforesaid
view has been expressed in Bhatia International (supra) and
Venture  Global  Engineering  (supra).   In  our  opinion,
accepting such an interpretation would be to ignore the spirit
underlying  the  New  York  Convention  which  embodies  a
consensus  evolved  to  encourage  consensual  resolution  of
complicated,  intricate  and  in  many  cases  very  sensitive
International  Commercial   Disputes.  Therefore,  the
interpretation which hinders such a process ought not to be
accepted. This also seems to be the view of the national courts
in different jurisdictions across the world. For the reasons
stated above, we are also unable to agree with the conclusions
recorded by this Court in Venture Global Engineering (supra)
that the foreign award could be annulled on the exclusive
grounds that the Indian law governed the substance of the
-  - 15dispute. Such an opinion is not borne out by the huge body of
judicial precedents in different jurisdictions of the world.
Interim measures etc. by the Indian Courts where the seat
of arbitration is outside India.
159. We have earlier noticed the submissions made by the
learned counsel for the parties wherein they had emphasised
that in case the applicability of Part I is limited to arbitration
which take place in India, no application for interim relief
would be available under  Section 9 of the Arbitration Act,
1996, in an arbitration seated outside India. It was further
emphasised that in such circumstances, the parties would be
left remediless.  Dr. Singhvi, in order to get out of such a
situation, had submitted that remedy under Section 9 would
still be available. According to Dr. Singhvi, Section 9 is a stand
alone  provision  which  cannot   be  effected  by  the  limit
contained  in  Section  2(2).  He   submits  that  the  provisions
contained in Section 9 do not impede the arbitral process. Its
only  purpose  is  to  provide  an  efficacious,  preservatory,
interim, conservatory, emergent relief necessary for protecting
the subject matter of arbitration, pending the conclusions of
the proceedings. He also emphasised that interim orders of
-  - 15foreign courts are not, ipso facto or  ipso jure, enforceable in
India and, absent Section 9, a party will be remediless in
several real life situations. He, therefore, urged that this Court
could give a purposive interpretation of Section 9 to ensure
that the Courts in India have the jurisdiction to take necessary
measures  for  preservation  of assets  and/or  to  prevent
dissipation of assets. Dr. Singhvi submitted that the decision
in  Bhatia  International  (supra) is  correct,  in so  far  as  it
relates to the grant of interim injunction under Section 9 of
the Arbitration Act, 1996. He did not say before us that the
courts in India would have any  power to annul the award
under  Section  34  of  the  Arbitration  Act,  1996,   in   matters
where arbitrations have taken place at abroad. But at the
same  time,  he  canvassed  that  the  provisions  contained  in
Section 9 cannot be equated with the provisions contained in
Section  34.  The  remedy  under  Section  9  is  interim  and
subservient  to  the  main  arbitration  proceedings,  whereas
remedy under Section 34 would interfere with the final award.
Further  more,  annulment  of  the  award  under  Section  34
would have extra-territorial operation whereas Section 9 being
entirely asset focused, would be intrinsically territory focused
-  - 15and intra-territorial in its operation. He submitted that the
ratio in Bhatia International on the core issue, i.e., grant of
interim measures under Section 9, is correct.  Although, he
was not much concerned about the other issues, of annulment
or  enforcement  of  the  award,  he  has  reiterated  the
submissions made by the other learned counsel, on Sections
2(2), 2(1)(f) and 2(5).
160. We are unable to accept the submissions made by the
learned counsel.  It would be wholly undesirable for this Court
to declare by  process of interpretation that Section 9 is a
provision which falls neither in Part I or Part II.  We also do
not agree that Section 9 is a sui generis provision.
161.  Schematically,  Section  9  is  placed  in  Part  I  of  the
Arbitration Act,  1996.   Therefore,   it   can   not   be   granted   a
special status. We have already held earlier that Part I of the
Arbitration  Act,  1996  does  not  apply  to  arbitrations  held
outside India. We may also notice that Part II of the Arbitration
Act, 1996, on the other hand, does not contain a provision
similar  to  Section  9.  Thus,  on  a  logical  and  schematic
construction of the Arbitration Act, 1996, the Indian Courts do
-  - 16not have the power to grant interim measures when the seat of
arbitration is outside India.  A bare perusal of Section 9 would
clearly  show  that  it  relates  to  interim  measures  before  or
during arbitral proceedings or at any time after the making of
the arbitral award, but before it is enforced in accordance with
Section 36.  Section 36 necessarily  refers to enforcement of
domestic  awards  only.   Therefore,  the  arbitral  proceedings
prior to the award contemplated under Section 36 can only
relate to arbitrations which take place in India. We, therefore,
do  not  agree  with  the  observations  made  in  Bhatia
International (supra)  in  paragraph  28  that  “The  words  in
accordance with Section 36 can only go with the words after
the making of the arbitral award.” It is clear that the words “in
accordance  with  Section  36”  can  have  no  reference  to  an
application made “before” or “during the arbitral proceedings”.
The text of Section 9 does not support such an interpretation.
The relevant part of the provisions is as under:
“9. Interim measures, etc. by Court – A party may,
before or during arbitral proceedings or at any time
after the making of the arbitral award but before it
is enforced in accordance with Section 36, apply to
a court………..”
162.  A bare look at the aforesaid provision would indicate that
-  - 16there is no break up of the sentence in between the two comas
at  the  beginning  and  end  of   the  sentence.  Therefore,  the
sentence cannot be broken into three parts as it is done in
paragraph 28 of  Bhatia  International (supra). The arbitral
proceedings mentioned in the aforesaid provision cannot relate
to arbitration which takes place outside India.
163. Therefore, we have no hesitation in declaring that the
provision contained in Section 9 is limited in its application to
arbitrations  which  take  place   in  India.   Extending  the
applicability  of  Section  9  to  arbitrations  which  take  place
outside  India would be to do  violence to the policy of the
territoriality declared in Section 2(2) of the Arbitration Act,
1996.
164. It was next submitted that if the applicability of Part I is
limited to arbitrations which take place in India, it would leave
many parties remediless in a number of practical situations.
165. In this connection, Mr. Sorabjee has relied upon the
judgment of the English High Court in Reliance  Industries
Limited  (supra). In the aforesaid case, the contracts were
governed by the Indian law as their proper law. The disputes
-  - 16were to be determined by  the arbitration in London.  The
procedural law applicable was English Law. The distinction
between the proper law of the JOA’s and the procedural law
was known to the parties. At the arbitration hearing, the
parties agreed that the principles of construction of contracts
in Indian Law were the same as in English Law. The parties
further  agreed  that  the  English  Law  principles  on  the
construction  of  contracts  were  those  set  out  by  Lord
Hoffmann  in  Investors  Compensation  Scheme  Ltd.  vs.
West  Bromwich  Building  Society,
47
 as  explained  and
expanded by Lord Hoffmann in Bank of Credit & Commerce
International SA vs. Ali & Ors.
48
 In their awards, the three
arbitrators stated (at paragraph 73) that they would apply
those  principles  to  construe  the  contracts  under
consideration in making their Partial Arbitral Awards. The
question raised at the threshold was whether the applicantReliance  can  apply  for  permission  to  appeal  to  the
Commercial Court in England and Wales “on a question of
law arising out of an award made in the proceedings” under
Section 69 (1) of the Arbitration Act, 1996 (English). So the
47  [1998] WLR 1896 at 913
48  [2001] 2 WLR 735 at 749
-  - 16“threshold” issue was whether any point  of construction of
the contracts, assuming that would be a question of law at
all,  is  a  “question  of  law  of England  and  Wales”  within
Section 82(1) of the Arbitration Act, 1996. It was accepted by
the applicant that unless the question of law concerned “the
law of England and Wales, then leave to appeal cannot be
granted.” The issue before the Court was as to whether the
questions of construction of JOA’s are questions of Indian
Law because the contracts are governed by Indian Law. The
parties did not, as a matter of fact, vary the proper law of the
contracts for the purposes of arbitration hearing in London.
As the parties agreed that the Indian Law applied to the
contracts,  the  arbitrators  had  to  apply  Indian  Law  when
construing the contracts. Although the parties agreed that
Indian Law and English Law principles of construction were
the same,  ultimately the arbitrators  were applying Indian
Law rather than English Law to construe the contract. The
Court  rejected  the  submission of  the  applicant  that  the
arbitrators had applied the English Law. The Court observed
that:-
“27.  I  am  unable  to  accept   the   submissions   of
Mr.Akenhead. The parties agreed that the contracts
-  - 16were to be governed by Indian Law as their proper
law. The parties also agreed that disputes should be
determined by arbitration in London. The parties
were carful to ensure that English Law would be the
procedural law applicable to arbitration proceedings
that arose as a result of disputes arising out of the
JOAs. The distinction between the proper law of the
JOAs and the procedural law was  also well in the
minds  of  the  arbitrators  as  they  drew  particular
attention  to  it  in  paragraph  26  of  their  Partial
Awards. The effect of those contractual provisions
is,  as  the  arbitrators  also  recognized,  that  all
procedural matters were to be governed by English
law as laid down in Part 1 of the 1996 Act. The
parties must be taken to have appreciated that fact
also.
28. The consequence is that if and when disputes
under the contracts were referred to arbitration, as
a matter of the procedural law of the arbitrations
(English  Law),  the  tribunal  had  to  decide  those
disputes in accordance with the proper law of the
contracts  as  chosen  by  the  parties  –  unless  the
parties agreed to vary the contracts’ terms, which
they  did  not.  Therefore,   if  as  in  this  case,  the
arbitrators had to decide issues of construction of
the JOAs, then they were bound to do so using
principles  of  construction  established  under  the
proper law of the contracts, i.e. Indian law.
29.  As  it  happens  the  parties  agreed  that  the
principles of construction under the proper law of
the contract equated with those principles under
English law, as declared by the House of Lords in
two recent cases. What the arbitrators did was to
take  those  principles  of  construction  and  apply
them  as  principles  of  Indian  law  in  order  to
construe the contracts according to Indian law. The
arbitrators  had  to  do  that,  as  a  matter  of  the
procedural law of the arbitration. That is because
under the English law of arbitration procedure, the
arbitrators were bound to construe the contracts
and  determine  the  disputes  between  the  parties
according  to  the  proper  law  of  the  contracts
-  - 16concerned.          
30. Therefore, I think that it is wrong to say that the
arbitrators “applied English Law” when construing
the  contracts.  They  applied  Indian  law,  which
happened to be the same as English law on this
topic.”
166. On the basis of that, it was concluded that no question
of law of England and Wales arises out of the two partial
awards of the arbitrators. It was accordingly held that the
English Court does not have any power to grant leave to
appeal under Section 69 of the Arbitration Act, 1996.
167. In our opinion, the aforesaid judgment does not lead to
the conclusion that the parties were left without any remedy.
Rather the remedy was pursued in England to its logical
conclusion.  Merely,  because the  remedy  in  such
circumstances may be more onerous from the view point of
one party is not the same as a party being left without a
remedy. Similar would be the position in cases where parties
seek interim relief with regard to the protection of the assets.
Once the parties have chosen voluntarily that the seat of the
arbitration shall be outside India, they are impliedly also
understood  to  have  chosen   the  necessary  incidents  and
consequences of such choice. We, therefore, do not find any
substance in the submissions made by the learned counsel
-  - 16for the appellants, that if applicability of Part I is limited to
arbitrations which take place in India, it would leave many
parties remediless.                    
168.  If  that  be  so,  it  is  a  matter  to  be  redressed  by  the
legislature. We may also usefully refer here to the observations
made  in  Nalinakhya  Bysack  (supra),  Duport  Steels  Ltd.
(supra)  and Magor  &  St.  Mellons,  RDC Vs.  Newport
Corporation (supra),   in   which   the   attempt   made   by   Lord
Denning  to  construe  legislation  contrary  to  Parliament’s
intention just to avoid hardship was disapproved by the House
of Lords.  It was observed by Lord Simonds as follows:-
“The second part of the passage that I have cited
from the judgment of the learned Lord Justice is no
doubt the logical sequel of the first.  The court,
having discovered the intention of Parliament and of
Ministers  too,  must  proceed  to  fill  in  the  gaps.
What the legislature has not written, the court must
write.  This proposition, which restates in a new
form the view expressed by the Lord Justice in the
earlier case of Seaford Court Estates Ld. V. Asher
(to which the Lord Justice himself refers), cannot be
supported.   It  appears  to  me  to  be  a  naked
usurpation of the legislative function under the thin
disguise of interpretation and it is the less justifiable
when   it   is   guesswork   with   what   material   the
legislature would, if it had discovered the gap, have
filled it in.  If a gap is disclosed, the remedy lies in an
amending Act.”
 [emphasis supplied]
-  - 16169. The aforesaid words in italics have been quoted with
approval by a Constitution  Bench of this Court in  Punjab
Land  Development  and  Reclamation  Corporation  Ltd.,
Chandigarh  Vs.  Presiding  Officer,  Labour  Court,
    Chandigarh & Others.
49
 
170.  In view of the aforesaid, we are unable to agree with the
submission made by Dr. Singhvi that provision contained in
Section 9 can be made applicable even to arbitrations which
take  place  outside  India  by   giving   the   same   a   purposive
interpretation.  In our opinion, giving such an interpretation
would be destructive of the territorial principles upon which
the UNCITRAL Model Laws are premised, which have been
adopted by the Arbitration Act, 1996.
171.   We are further of the opinion that the approach adopted
by this Court in Bhatia International to remove the perceived
hardship is not permissible under law. A perusal of paragraph
15  would  show  that  in  interpreting  the  provisions  of  the
Arbitration Act, 1996, the court applied the following tests:
 
“Notwithstanding the conventional principle that
the  duty  of  Judges  is  to  expound  and  not  to
legislate, the courts have taken the view that the
49  (1990) 3 SCC 682
-  - 16judicial  art  interpretation  and  appraisal  is
imbued  with  creativity  and  realism  and  since
interpretation  always  implied  a  degree  of
discretion and choice, the courts would adopt,
particularly  in  areas  such  as,  constitutional
adjudication dealing with social and defuse (sic)
rights. Courts are therefore, held as “finishers,
refiners and polishers of legislation which comes
to them in a state requiring varying degrees of
further  processing”  (see  Corocraft  Ltd. v.  Pan
American Airways, All ER at p. 1071 D, WLR at
p. 732, State of Haryana v. Sampuran Singh, AIR
at  p.  1957).  If  a  language  used  is  capable  of
bearing more than one construction, in selecting
the  true  meaning,  regard  must   be   had   to   the
consequences,  resulting  from  adopting  the
alternative  constructions. A  construction  that
results  in  hardship,  serious  inconvenience,
injustice, absurdity or anomaly or which leads to
inconsistency or uncertainty and friction in the
system  which  the  statute   purports  to  regulate
has to be rejected and preference should be given
to that construction which avoids such results.”
172. From the above, it is evident that the provisions of the
Arbitration Act, 1996 were interpreted keeping in mind the
consequences  in  limiting  the   applicability  of  Part  I  to
arbitrations which take place in India. The Court also acted as
“finishers”, “refiners” and “polishers” of the Arbitration Act,
1996 assuming that the Arbitration Act, 1996 required varied
degrees  of  further  “processing”.  In  our  opinion,  as
demonstrated whilst discussing the various provisions of the
Arbitration Act, 1996 in earlier part of judgment, the intention
-  - 16of the Parliament is available within the text and the context of
the  provisions.  As  observed  by  Lord  Simonds  in  Magor  &
St.Mellons Vs.  Newport  Corporation  (supra), if the gap or
lacuna is disclosed, it would be for the Parliament to rectify
the same. Such a task cannot be undertaken by the Court.
173. It was also submitted that Non-Convention Awards would
not be covered either by Part I or Part II. This would amount to
holding that the legislature has left a lacuna in the Arbitration
Act, 1996. This would mean that there is no law in India
governing such arbitrations.
174.   We  are  of  the  opinion  that  merely  because  the
Arbitration  Act,  1996  does   not  cover  the  non  convention
awards would not create a lacuna in the Arbitration Act, 1996.
If there was no lacuna during the  period in which the same
law  was  contained  in  three  different  instruments,  i.e.  the
Arbitration Act, 1940 read with 1961 Act, and the Arbitration
(Protocol and Convention) Act, 1937, it cannot be construed as
a  lacuna when  the  same  law  is  consolidated  into  one
legislation, i.e. the Arbitration Act, 1996.
-  - 17175. It must further be emphasised that the definition of
“foreign awards” in Sections 44 and 53 of the Arbitration Act,
1996 intentionally limits it to awards made in pursuance of an
agreement to which the New York Convention, 1958 or the
Geneva Protocol, 1923 applies. It is obvious, therefore, that no
remedy  was  provided  for  the  enforcement  of  the  ‘non
convention awards’ under the 1961 Act. Therefore, the non
convention award cannot be incorporated into the Arbitration
Act, 1996 by process of interpretation. The task of removing
any perceived  lacuna or curing any defect in the Arbitration
Act,  1996  is  with  the  Parliament.  The  submission  of  the
learned counsel is, therefore,  rejected. The intention of the
legislature is primarily to be discovered from the language
used, which means that the attention should be paid to what
has  been  said  and  also  to  what  has  not  been  said.  [See:
Gwalior  Rayon  Silk  Mfg.  (Wvg.)  Co.  Ltd.  vs.  Custodian  of
Vested Forests, [AIR 1990 SCC 1747 at page 1752]. Here the
clear intention of the legislature is not to include  the Nonconvention Awards within the Arbitration Act, 1996.  
      Is An Inter-Parte Suit For Interim Relief Maintainable –
-  - 17176. It appears to us that as a matter of law, an inter-parte
suit simply for interim relief pending arbitrations, even if it be
limited  for  the  purpose  of  restraining  dissipation  of  assets
would not be maintainable. There would be number of hurdles
which the plaintiff would have to cross, which may well prove
to be insurmountable.
177. Civil Courts in India, by virtue of Section 9 of the Code of
Civil  Procedure,  1908  (for  short  the  ‘CPC’),  have  the
jurisdiction to try all suits of a civil nature, excepting suits
which are either expressly or impliedly barred. Fundamental
to the maintainability of a civil suit is the existence of a cause
of action in favour of the plaintiff. This is evident from the
various provisions contained in the CPC. However, it would be
appropriate to notice that Order VII Rule 1 gives the list of the
particulars  which  have  to  be  mandatorily  included  in  the
plaint. Order VII Rule 1(e) mandates the plaintiff to state the
facts constituting the cause of action and when it arose. Order
VII Rule 11(a) provides the plaint shall be rejected where it
does not disclose a cause of action. A cause of action is the
bundle of facts which are required to be proved for obtaining
relief prayed for in the suit. The suit of the plaintiff has to be
-  - 17framed in accordance with Order II. Order II Rule 1 provides
that every suit shall as far as practicable be framed so as to
afford ground for final decision upon the subjects in dispute
and  to  prevent  further  litigation  concerning  them.  The
aforesaid rule is required to be read along with Rule 2 which
provides  that every suit shall include the whole of the claim
which the plaintiff is entitled to make in respect of the cause
of action;  but a plaintiff may relinquish any portion of his
claim in order to bring the suit within the jurisdiction of any
court. The aforesaid provisions read together would lead to the
firm conclusion that the existence of cause of action is a sine
qua non for the maintainability of a civil suit.
178. The provisions with regard to the temporary injunction
and interlocutory orders are contained in Order 39 and Order
40. In order to claim an injunction the existence of a pending
suit is a pre requisite. It is in this background that one has to
examine as to whether an inter-parte suit for interim relief
during the pendency of arbitration proceedings outside India
would be maintainable.
179. In our opinion, pendency of the arbitration proceedings
-  - 17outside India would not provide a  cause of action for a suit
where the main prayer is for injunction. Mr.Sundaram has
rightly pointed out that the entire suit would be based on the
pendency  of  arbitration  proceedings  in  a  foreign  country.
Therefore,  it  would  not  be  open to  a  party  to  file  a  suit
touching on the merits of the arbitration. If such a suit was to
be  filed,  it  would  in  all  probabilities  be  stayed  in  view  of
Sections 8 and 45 of the Arbitration Act, 1996. It must also be
noticed that such a suit, if at all, can only be framed as a suit
to  “inter  alia  restrain  the  defendant  from  parting  with
property.” Now, if the right to such property could possibly
arise, only if the future arbitration award could possibly be in
favour of the plaintiff, no suit for a declaration could obviously
be filed, based purely only on such a contingency. All that
could  then  be  filed  would,  therefore,  be  a  bare  suit  for
injunction  restraining  the  other  party  from  parting  with
property. The interlocutory relief would also be identical. In
our view, such a suit would not be maintainable, because an
interlocutory  injunction  can  only  be  granted  during  the
pendency of a civil suit claiming a relief which is likely to
result in a final decision upon the subject in dispute. The suit
-  - 17would be maintainable only on the existence of a  cause of
action, which would entitle the plaintiff for the substantive
relief claimed in the suit. The interim injunction itself must be
a part of the substantive relief to which the plaintiff’s cause of
action  entitled  him.  In  our  opinion,  most  of  the  aforesaid
ingredients  are  missing  in  a  suit  claiming  injunction
restraining a party from dealing with the assets during the
pendency of arbitration proceedings outside India. Since  the
dispute is to be decided by the Arbitrator, no substantive relief
concerning the merits of the arbitration could be claimed in
the suit. The only relief that could be asked for would be to
safeguard the property which the plaintiff may or may not be
entitled to proceed against. In fact the plaintiff’s only claim
would depend on the outcome of the arbitration proceeding in
a foreign country over which the courts in India would have no
jurisdiction.  The  cause  of  action  would  clearly  be
contingent/speculative. There would be no existing cause of
action. The plaint itself would be liable to be rejected under
Order  VII  Rule  11(a).  In  any   event,  as  noticed  above,  no
interim  relief  could  be  granted  unless  it  is  in  aid  of  and
ancillary to the main relief that may be available to a party on
-  - 17final  determination  of  rights  in a  suit.  This  view  will  find
support from a number of judgments of this Court.
180. In the      State  of  Orissa  vs.  Madan  Gopal  Rungta,
50
    at
page 35 this Court held:
“….An interim relief can be granted only in aid or,
and as ancillary to, the main relief which may be
available to the party on final determination of his
rights in a suit or proceeding……”
181. Following the above Constitution Bench, this Court in
    Cotton  Corporation  Limited  vs.  United  Industrial  Bank
51
 
held:
“10……But  power  to  grant  temporary  injunction
was conferred in aid or as auxiliary to the final relief
that may be granted. If the final relief cannot be
granted in terms as prayed for, temporary relief in
the same terms can hardly if ever be granted. In
State  of  Orissa v.  Madan  Gopal  Rungta a
Constitution Bench of this Court clearly spelt out
the  contours  within  which  interim  relief  can  be
granted. The Court said that ‘an interim relief can
be granted only in aid of, and as ancillary to, the
main relief which may be available to the party on
final  determination  of  his  rights  in  a  suit  or
proceeding’. If this be the purpose to achieve which
power to grant temporary relief is conferred, it is
inconceivable that where the final relief cannot be
granted in the terms sought for because the statute
bars granting such a relief ipso facto the temporary
relief of the same nature cannot be granted…..”
50  AIR 1952 SC 12
51  (1983) 4 SCC 625
-  - 17182. The legal position is reiterated in Ashok Kumar Lingala
    vs. State of Karnataka.
52
 
183.  In matters pertaining to arbitration, the suit would
also  be barred under Section 14(2) of the Specific Relief Act.
Although the provision exists in Section 37 of the Specific
Relief Act, 1963, for grant of temporary/perpetual injunction,
but the existence of cause of action would be essential under
this  provision  also.  Similar   would  be  the  position  under
Section 38 of the Specific Relief Act.  
184. Claim for a Mareva Injunction in somewhat similar
circumstances came up for consideration in England before
the House of Lords in  Siskina  (Cargo  Owners)  Vs.  Distos
    Compania      Navieria  SA  (supra).  In this case, cargo owners
had a claim against a Panamanian company.  The dispute had
no connection with England.  The defendant’s only ship had
sunk and there were insurance proceeds in England to which
the defendant was entitled.  The cargo owners sought leave to
serve the writ on the defendant  under what was then RSC
Order 11, Rule 1(1)(i).  Mocatta, J. gave leave and at the same
52  (2012) 1 SCC 321
-  - 17time  granted  an  injunction  in  the  terms  asked  for  in
Paragraph 2 of the writ petition.  Subsequently, Kerr, J. set
aside the notice of  the writ  but maintained the injunction
pending in appeal.  On the cargo-owners appeal, the Court of
Appeal by a majority reversed the judgment of Kerr, J. and
restored  the  Mareva  injunction  as  originally  granted  by
Mocatta, J.  The matter reached the House of Lords by way of
an  appeal  against  the  majority  judgment  of  the  Court  of
Appeal.  The House of Lords on appeal held that there was no
jurisdiction to commence substantive proceedings in England.
Therefore,  the  writ  and  all  subsequent  proceedings  in  the
action had to be set aside. Consequently there could be no
Mareva injunction.  It was held that a Mareva injunction was
merely  an  interlocutory  injunction  and  such  an  injunction
could only be granted as “.… ancillary and incidental to the
pre-existing cause of action”.
185. Lord Diplock observed that “it is conceded that the cargo
owners’ claim for damages for breach of contract does not of
itself fall within any of the sub-rules of Order 11, Rule 1(1);
nor  does  their  claim  for  damages  for  tort.”   It  is  further
observed that “what is contended by the counsel for the cargo-
-  - 17owners  is that if the action is nevertheless allowed to proceed,
it will support a claim for Mareva  injunction restraining the
ship  owners  from  disposing  of  their  assets  within  the
jurisdiction  until  judgment  and  payment  of  the  damages
awarded thereby; and that this of itself is sufficient to bring
the case within sub-rule (i) which empowers the High Court to
give leave for service of its process on persons outside the
jurisdictions”.  Interpreting Order 11 Rule 1(i), it was held that
the word used in sub-rule (i) are terms of legal art.  The subrule speaks of “the action” in which a particular kind of relief,
“an injunction” is sought.  This pre-supposes the existence of
a cause of action on which to found “the action”.  A right to
obtain an interlocutory injunction is not a cause of action.  It
cannot stand on its own.  It is dependent upon there being a
pre-existing cause of action against the defendant arising out
of an invasion,  actual  or threatened by  him, of a legal  or
equitable right of the plaintiff for the enforcement of which the
defendant is amenable to the jurisdiction of the Court.  The
right to obtain an interlocutory injunction is merely ancillary
and incidental to the pre-existing cause of action.  It is granted
to preserve the status quo pending the ascertainment by the
-  - 17Court of the rights of the parties and the grant to the plaintiff
of the relief to which his cause of action entitles him, which
may or may not include a final injunction.
186.  As noticed earlier, the position is no different in India.
Therefore it appears that under the law, as it stands today, an
inter-parte suit simply for interim relief pending arbitration
outside India would not be maintainable.
187.  It appears after the aforesaid observations were made
in  Siskina  (Cargo  Owners)  (supra), necessary amendments
were  made  in  the  English  Law  viz.  Section  37(1)  of  the
Supreme  Court  Act,  1981.   The  provision  was  specifically
made for grant of Mareva injunction by Section 25 of the Civil
Jurisdiction and Judgments Act, 1982.
189. The after effects of Siskina (Cargo Owners) (supra) were
duly noticed by Steven Gee QC MA (Oxon) in his book titled
Mareva Injunctions and Anton Piller Relief, Fourth Edition, as
under:-
(i) The  English  Court  would  not  assert  a
substantive jurisdiction over a defendant just
because he had assets within the jurisdiction.
The contrary proposition would have had the
-  - 18unsatisfactory  consequence  as  observed  by
Lord Diplock in Siskina that the Court would
find itself asserting jurisdiction over a foreigner
to decide the merits of substantive proceedings
which had nothing to do with England.
(ii) There  was  no  jurisdiction  to  grant  Mareva
relief  unless  and  until  the  plaintiff  had  an
accrued right of action.
(iii) There was no jurisdiction to preserve assets
within  the  jurisdiction  of  the  Court  which
would be needed to satisfy a claim against the
defendant if it eventually succeeded regardless
of where the merits of the substantive claim
were to be decided.  According to the other, the
position  in  relation  to  the  free-standing
interlocutory injunction relief has been eroded
by a succession of developments.
190. Thereafter, in a subsequent judgment in Channel Tunnel
Group Ltd. & Anr. Vs. Balfour Beatty Construction Ltd. &
    Ors.,
53
    Lord  Mustill  summed  up  the  principle  for  grant  of
interim relief as follows:-
“For present purposes it is sufficient to say that the
doctrine of Siskina, put at its highest, is that the
right to an interlocutory injunction cannot exist in
isolation, but is always incidental to and dependent
on the enforcement of a substantive right, which
usually although not invariably takes the shape of a
53  (1993) AC 334
-  - 18cause of action.  If the underlying right itself is not
subject to the jurisdiction of the English Court, then
that Court should never exercise its power under
Section 37(1) by way of interim relief.”
191. However, on facts in the Channel Tunnel case (supra), it
was found that “if this is a correct appreciation of the doctrine,
it does not apply to the present case.”
192. From the above, it is apparent that the injunctive relief
was granted in Channel Tunnel case in view of the statutory
provisions  contained in Section 37(1) of the Supreme Court
Act,  1981.   This  is  made  further  clear  by  the  following
observations:-
“We  are  concerned  here  with  powers  which  the
Court already possesses under Section 37 of the Act
of 1981.  The only question is whether the court
ought permanently and unconditionally to renounce
the possibility of exercising such powers in a case
like the present.  I am unable to see why the fact
that Parliament is contemplating the specific grant
of  interim  powers,  not  limited  to  interlocutory
injunctions, in support of arbitrations but has not
yet chosen to do so should shed any light on the
powers of the court under existing law.  It may be
that if and when section 25 is made applicable to
arbitrations, the court will have to be very cautious
in the exercise of its general powers under section
37 so as not to conflict with any restraint which the
legislature may have imposed on the exercise of the
new and specialized powers.”
-  - 18193. The decision in Channel Tunnel would not support the
proposition  that  injunctive   relief  could  be  granted  under
Section 9 of the Arbitration Act, 1996, as no corresponding
provision to Section 37(1) of the English Supreme Court Act,
1981 exists under the Indian legislation.
194. Mr. Sorabjee has also referred to the principle that no
suit allows for grant of interim injunction simplicitor and that
an interim injunction had to be granted only in aid of a final
injunction/principle relief claimed in the suit.  He made a
reference to the Constitution Bench decision of this Court in
State  of  Orissa  Vs.      Madan  Gopal      Rungta  (supra).  He also
referred to the judgment of the House of Lords in Fourie Vs.
Le  Roux  (supra).  The House of Lords after referring to the
decision in Siskina and Channel Tunnel observed as follows:-
“On the other hand, if the leave had been upheld, or
if the defendant had submitted to the jurisdiction, it
would still have been open to the defendant to argue
that the grant of a Mareva injunction in aid of the
foreign proceedings in Cyprus was impermissible,
not  on  strict  jurisdictional  grounds  but  because
such  injunctions  should  not  be  granted  otherwise
than  as  ancillary  to  substantive  proceedings  in
England.”                                    [emphasis supplied]
195. However, the House of Lords pointed out in Paragraph 31
-  - 18of the judgment that the relief can now be granted under
English  Law  by  virtue  of  express  provision  contained  in
Section 25 of the Civil Jurisdiction and Judgment Act, 1982,
as  extended  to  the  Civil  Jurisdiction  and  Judgments  Act
(Interim  Relief)  Order,  1997.   This  order  enables  the  High
Court “to grant interim relief” in relation to “proceedings that
have been or are about to be commenced in a foreign state”.
196.    So far as the Indian Law is concerned, it is settled that
the  source  “of  a  Court’s  power  to  grant  interim  relief  is
traceable to Section 94 and in exceptional cases Section 151
CPC.  CPC pre-supposes the existence of a substantive suit for
final relief wherein the power to grant an interim relief may be
exercised only till disposal thereof.
197. In this view of the matter, it is patent that there is no
existing provision under the CPC or under the Arbitration Act,
1996 for a Court to grant interim measures in terms of Section
9, in arbitrations which take place outside India, even though
the parties by agreement may have made the Arbitration Act,
1996 as the governing law of arbitration.
CONCLUSION :-
198. In view of the above discussion, we are of the considered
-  - 18opinion  that  the  Arbitration   Act,  1996  has  accepted  the
territoriality  principle  which  has  been  adopted  in  the
UNCITRAL Model Law. Section 2(2) makes a declaration that
Part  I  of  the  Arbitration  Act,  1996  shall  apply  to  all
arbitrations  which  take  place  within  India.  We  are  of  the
considered opinion that Part I of the Arbitration Act, 1996
would  have  no  application  to  International  Commercial
Arbitration held outside India. Therefore, such awards would
only be subject to the jurisdiction of the Indian courts when
the same are sought to be enforced in India in accordance with
the provisions contained in Part II of the Arbitration Act, 1996.
In our opinion, the provisions contained in Arbitration Act,
1996 make it crystal clear that there can be no overlapping or
intermingling of the provisions contained in Part I with the
provisions contained in Part II of the Arbitration Act, 1996.
199.    With utmost respect, we are unable to agree with the
conclusions recorded in the judgments of this Court in Bhatia
International  (supra)  and  Venture  Global  Engineering
(supra). In our opinion, the provision contained in Section 2(2)
of the Arbitration Act, 1996 is not in conflict with any of the
provisions either in Part I or in Part II of the Arbitration Act,
-  - 181996. In a foreign seated international commercial arbitration,
no application for interim relief would be maintainable under
Section 9 or any other provision, as applicability of Part I of
the Arbitration Act, 1996 is limited to all arbitrations which
take place in India. Similarly, no suit for interim injunction
simplicitor would be maintainable in India, on the basis of an
international commercial arbitration with a seat outside India.
200.   We conclude that Part I of the Arbitration Act, 1996 is
applicable only to all the arbitrations which take place within
the territory of India.
201. The  judgment  in  Bhatia  International  (supra) was
rendered by this Court on 13
th
 March, 2002.  Since then, the
aforesaid judgment has been followed by all the High Courts
as well as by this Court on numerous occasions.  In fact, the
judgment in  Venture  Global  Engineering  (supra)  has been
rendered on 10
th
 January, 2008 in terms of the ratio of the
decision in Bhatia International (supra).  Thus, in order to do
complete justice, we hereby order, that the law now declared
by this Court shall apply prospectively, to all the arbitration
agreements executed hereafter.
-  - 18202.  The reference is answered accordingly.    
...............…………………..CJI.
[S.H.KAPADIA]
…….…………………………..J.
[D.K.JAIN]
.………………………………….j
[SURINDER SINGH NIJJAR]
………………………………….J.
[RANJANA PRAKASH DESAI]
..………………………………..J.
                [JAGDISH SINGH KHEHAR]
NEW DELHI;
SEPTEMBER 06, 2012.
ITEM NO.1A         COURT NO.1         SECTION IV/XVI/XVIA/XII/IVA
            S U P R E M E   C O U R T   O F   I N D I A
                         RECORD OF PROCEEDINGS
                   CIVIL APPEAL NO.7019 OF 2005
BHARAT ALUMINIUM CO.                              Appellant (s)
                 VERSUS
KAISER ALUMINIUM TECHNICAL SERVICES. INC.         Respondent(s)
(With appln(s) for substitution, intervention, stay, permission
to file additional documents and office report)
With Civil Appeal No.6284 of 2004
(With appln.(s) for permission to file additional documents
and office report)
Civil Appeal No.3678 of 2007
-  - 18(With appln.(s) for substitution and office report)
Transferred Case (C) No.35 of 2007
(With appln.(s) for directions, c/delay in filing reply affidavit
and bringing on record additional documents)
S.L.P. (C) Nos.3589-3590 of 2009
(With appln.(s) for permission to file synopsis and list of
dates,
permission to file additional documents, prayer for interim
relief and office report)
S.L.P. (C) Nos.31526-31528 of 2009
(With office report)
S.L.P. (C) No.27824 of 2011
(With appln.(s) for directions, permission to file additional
documents and office report)
S.L.P. (C) No.27841 of 2011
(With prayer for interim relief and office report)
Date: 06/09/2012  These Matters were called on for judgment
           today.
...2/-
-  - 18- 2 -
For Appellant(s) Mr. C.A. Sundaram,Sr.Adv.
CA 7019/2005 & Mr. Ramesh Singh,Adv.
CA 3678/2007:          Ms. Mehernaz Mehta,Adv.
Ms. Binu Tamta,Adv.
In CA 6284/2004: Mr. Subramonium Prasad,Adv.
In TC 35/2007: Mr. Parmanand Pandey,Adv.
In SLP 3589-90/2009 Mr. E.R. Kumar,Adv.
& SLP 31526-28/2009: M/s. Parekh & Co.,Advs.
In SLP 27824/2011 Ms. Ruby Singh Ahuja,Adv.
& SLP 27841/2011: M/s. Karanjawala & Co.,Advs.
For Respondent(s)
CA 7019/2005 &
CA 3678/2007: M/s. Suresh A. Shroff & Co.,Advs.
In SLP 3589-90/2009 M/s. Suresh A. Shroff & Co.,Advs.
In SLP 27824/2011
& 27841/2011: M/s. Suresh A. Shroff & Co.,Advs.
In CA 6284/2004: Mr. Anip Sachthey,Adv.
[Coal India Ltd.]
In TC 35/2007: Ms. Ruby Singh Ahuja,Adv.
Ms. Manik Karanjawala,Adv.
In SLP 3589-90/2009:
(For Respondent No.2) Mr. Rameshwar Prasad Goyal,Adv.
In SLP 27824/2011 Mr. A.V. Rangam,Adv.
& 27841/2011:
[for Respondent No.2/
S.B.I.]
For Intervenor(s) Mr. Dharmendra Rautray,Adv.
[I.A. No.7]
For Intervenor(s) Mr. S.K. Dholakia,Sr.Adv.
[I.A. No.8] Mr. Pramod Nair,Adv.
Mr. Divyam Agarwal,Adv.
Mr. Dheeraj Nair,Adv.
Ms. Aarthi Rajan,Adv.
...3/-
-  - 18- 3 -
For Intervenor(s) Mr. E.C. Agrawala,Adv.
[I.A. No.9]
For Intervenor(s) Mr. Nakul Dewan,Adv.
[I.A. No.6] Mr. V.P. Singh,Adv.
for M/s. Suresh A. Shroff & Co.,Advs.
For Intervenor(s) Mr. Ramesh Singh,Adv.
[J.K. Industries] Mr. A.T. Patra,Adv.
for M/s. O.P. Khaitan & Co.,Advs.
For Intervenor(s) Mr. Ramesh Babu M.R.,Adv.
[I.A. Nos.10-13]
Hon'ble  Mr.  Justice  Surinder  Singh
Nijjar  pronounced  the  judgement  of  the  Bench
comprising  of  Hon'ble  the  Chief  Justice,
Hon'ble  Mr.  Justice  D.K.  Jain,  His  Lordship,
Hon'ble Mrs. Justice Ranjana Prakash Desai and
Hon'ble  Mr.  Justice  Jagdish  Singh  Khehar,
answering the Reference.
    [ T.I. Rajput ]     [ Indu Satija ]
     A.R.-cum-P.S.             Court Master
[Signed  Reportable  Judgement  is  placed  on  the
file]
-  - 19