Faircot S.A. vs Tata SSL Ltd.

N.J. Pandya, J.—This appeal arises out of the order dated 19th November, 1999 of the Learned Single Judge in Arbitration Petition No. 128 of 1989. The said Petition was filed in respect of the Arbitration Award rendered by the Arbitrators appointed by the Liverpool Cotton Association Limited, Liverpool, U.K. As such, therefore, it will be governed by the provisions of the Foreign Awards (Recognition and Enforcement) Act, 1961. As can be expected, the prayer clauses in the Petition, at page 11 of the paper book, are that the Award be filed in the Court; the Respondent be served with a show cause notice calling upon it as to why the Award Exhibit "B" to the Arbitration Petition should not be filed in the Court and; of course, prayer as to the pronouncement of the judgment and drawing of a decree in accordance with the Award.

The principal objection raised before the Learned Single Judge by the Respondent was that the Award cannot be enforced because the Arbitrators have no jurisdiction to make the Award. This submission is made on the basis that the very existence of the contract pursuant to which the Arbitrators were appointed and entered into the Reference and gave the Award, itself was in question. For this purpose they relied on a Supreme Court judgment given in Renusagar Power Co. Ltd. Vs. General Electric Company and Another, .

In paragraph 6, the Learned Single Judge has raised the question whether the Foreign Award can be enforced by this Court under the provisions of the Act (the said Foreign Awards Act), where a person or a party against whom the award has been made had disputed the very existence of the contract containing the arbitration clause.

In our opinion, if this is the question raised and to be decided, strictly speaking it is directly covered by Section 7 of the Foreign Awards Act (for short, the said Act), and hence, along with all other points raised with regard to the merits of the Award and rival contentions of the parties, it ought to have been decided together. When read along with Section 5, Section 7 of the said Act clearly indicates that on filing of the award and on service of the notice, before passing an order u/s 6 as to the enforcement of foreign award, which will be preceded by pronouncement of judgment in accordance with the award, the contesting party on all or any of the grounds set out u/s 7 of the said Act can show that the award need not be filed in the Court. Only on acceptance of filing of the award, pronouncement of the judgment u/s 6 could be done. Before that, the affected party is to be heard under Sub-section (3) of Section 5 of the said Act, and in the course of hearing, all or any of the grounds as contained in Section 7 of the said Act can be pressed into service by the contesting party. The very judgment, which has been relied on by the Respondent - contesting party, was read before us, particularly from paragraph 50 onwards of the judgment at page 723 going upto page 728 where paragraph 54 commenced. Paragraph 54 of the said judgment was also read before us but we are not dealing with it because it pertains to arbitrability of the disputes which question will arise provided there is a contract under which the matter is to be decided by the Arbitrators. Paragraph 55 at page 731 categorically lays down as to what is to happen to the Foreign Award.

Before the said paragraph 52, the provisions of the Arbitration Act, 1940 (hereinafter referred to as the "Old Act, 1940") and Foreign Awards Act, 1961, have been compared and contrasted. On one hand, we have Sections 3, 4 and 7 of the Foreign Awards Act, 1961, and on the other, we have Sections 32, 33 and 34 of the Old Act, 1940. Clearly holding that, though Section 4(2) declares that a Foreign Award shall be treated as binding "for all purposes" on persons as between whom the award is made, it is laid down that it is subject to Section 7 where under enforceability thereof is made dependent upon satisfaction of certain conditions specified therein.

After analysing the aforesaid two sets of Sections, it is held in the latter part of that paragraph at page 726, that Section 3 of the Foreign Awards Act combines in its own ambit Sections 33 and 34 of the Old Arbitration Act, 1940, In other words, questions regarding the existence, validity or effect (scope) of the arbitration agreement which can be decided u/s 33 of the Old Act, 1940 are to be decided u/s 3 ; of the Foreign Awards Act and the right to have the legal proceedings stayed is to be found in Section 34 of the Old Act, 1940, and corresponding provision Is to be found in Section 3 of the said Foreign Awards Act, 1961.

The Foreign Awards Act, according to the aforesaid decision of the Supreme Court in paragraph 52, does take cognizance of the possibility that there may not be a Section 3 Petition at all and the matter being directly proceeded before the Arbitrators and the possibility of the Arbitrators giving a decision on an issue not within their own competence or jurisdiction would arise, and in such cases, Section 7 contains a safeguard which prevents any such award from being made enforceable.

Thereafter, at page 727, we find the learned Judges laying down the broad principle that, in respect of the domestic arbitration, the Arbitrators have no power to decide questions of their own jurisdiction but this would hardly be applicable to any Foreign Award made under the said Act. Therefore, the Scheme as it emerges from a combined reading of Sections 3 and 7 clearly shows that, so far as the questions as to existence, validity and effect (scope) of the arbitration agreement are concerned, the determination thereof by the Arbitrators is subject to the decision of the Court and that this decision of the Court can be had u/s 7 of the Act even after the award is made and filed in the Court but before it is made enforceable. The learned Judges pointedly referred to Section 7(1)(a)(i) and (iii) and held that the award can be challenged on these grounds which implies that the Arbitrators have decided those questions while making their award. In paragraph 50 at page 723, the learned Judges have referred to the historical aspects of the Foreign Awards Act. It''s predecessor was the Arbitration (Protocol and Convention) Act, 1937. It was based on Geneva Convention, 1927. It had found certain defects to meet the requirements of international trade, and to take care of those requirements for speedy settlement of disputes through arbitration, a draft Convention was prepared by the International Chamber of Commerce which eventually the Government of India acceded to and ratified on or about 13th July, 1960. The Foreign Awards Act, 1961 is the result thereof.

When the aforesaid judgment was given by the Hon''ble Supreme Court, we were still operating under the regime of Old Arbitration Act, 1940. That Act has been reviewed and on the basis of the UNCITRAL Model Law on International Commercial Arbitration in 1985 and the UNCITRAL Conciliation Rules in 1980, the Arbitration and Conciliation Act, 1 996 came to be enacted. The first object of the new Act is to comprehensively cover all these questions through Arbitration and to minimise the supervisory role of Courts in the arbitral process.

The arbitration scene, whether domestic or foreign, has thus radically altered. Today, we are considering the Foreign Award. The distinction between the domestic and foreign arbitration is to be considered in this background. If we consider the question of the learned Single Judge, as quoted in para 6 of his judgment, it would necessarily mean that mere raising of a question will be shutting out the Award and there is no need of the Court to enter into an inquiry u/s 7 at all.

This will be the position even though as in the instant case no recourse was had to Section 3 of the Foreign Awards Act. Raising this very question as to the existence of the contract, the proceedings before the Liverpool Cotton Association Limited, Liverpool, U.K., arbitration would have been stayed by obtaining appropriate orders from the Court. We find that the Respondent while submitting lengthy submissions before the Arbitrators of Liverpool Cotton Association Limited, Liverpool, U.K., was raising amongst others, the question of existence of the contract itself.

The Arbitrators have held in one manner and it is obviously against the Respondent. The aforesaid decision itself is subject to the decision of the Court u/s 7 of the Foreign Awards Act.

However, the learned Single Judge has gone mostly by the observations of the Hon''ble Supreme Court in Renusagar''s case (supra), paragraph 57 at page 735 going upto page 737. The Learned. Judges start the said paragraph with a rider that "really it is not necessary for them to go into and decide the question". The question decided by them pertains to the arbitration clause as contained in underlying commercial contract which is widely worded to include within its scope the questions of its existence, validity and effect (scope). An inquiry into the scope and effect of such agreement, whether exists, is not the question. There could be two fact situations : one is the comprehensive contract in which the arbitration clause is clearly enunciated; and the second is that the separate agreement other than the contract where the parties may decide to refer a question to the Arbitrators. Obviously, these two sets of fact will have different implications. Thereafter, the learned Judges have referred to the English cases, particularly the decision in the case of Jawahar Lal Burman Vs. Union of India (UOI), . However, at the end of paragraph 57 at page 737, they observed, "but as stated at the outset, the aforesaid question on which we have expressed our view, does not arise for decision in this case." This has prompted learned Advocate for the Respondents to submit that even the decision in obiter of the Supreme Court is binding on this Court. We agree with learned Counsel on this point. However, it is one thing to say that the orbiters binding and it is another thing to say that the paragraph containing obiter has in fact laid down the law as submitted by the Respondents.

The distinction between the domestic and foreign arbitration and the law on that point, in our opinion, is laid down, as discussed above in paragraphs 52 to 55 with historical background, as set out in paragraph 50 of the said judgment. In our opinion, if the view taken by the learned Single Judge is accepted, disastrous consequence will follow.

The very purpose of the Foreign Awards Act and the latest statutory attempt to minimise the supervisory role of Courts would be frustrated. Section 7 being there, contentions to be raised by the affected party as per Renusagar''s case (supra) are itself kept open and the party is free to raise the same before the learned Single Judge. In fairness to both the sides, it may be mentioned that they refrained from going into the merits of the matter predicating their submissions on the basis that the rival contentions on merits be left open to be decided by the learned Single Judge, if we allow the Appeal.

Accordingly, we allow the Appeal and set aside the order of the learned Single Judge and hold that these questions are kept open to be gone into while examining the questions as per Section 7 read with Sections 4 and 5 before passing the order u/s 6 of the Foreign Awards Act, 1961.

Under the circumstances, the parties are left to bear their own costs.

After the judgment was pronounced, on the ground that the Respondent had succeeded in one Court and that if the order is not stayed, the learned Single Judge''s Court is likely to dispose of the matter in a short period, the request for stay for a period of eight weeks is made.

In our opinion, this request cannot be entertained. Nothing has been finally decided and more particularly the question sought to be raised about the existence of contract is also kept open which can be gone into by the learned Single Judge on merits. If aggrieved by that order, the present Respondent shall certainly get an opportunity for agitating the same before the appropriate Court. It being a matter of foreign award and more particularly after passing of the 1996 Act, we are of the view that the matter arising out of the arbitration proceeding and particularly foreign award proceedings should be carried to its logical end as early as possible and the Court shall be mindful of the requirement which is underlying principle of 1996 Act. The request made therefore is rejected.