PASL WIND SOLUTIONS PRIVATE LIMITED versus GE POWER CONVERSION INDIA PRIVATE LIMITED

[2021] 4 S.C.R.

APASL WIND SOLUTIONS PRIVATE LIMITED

GE POWER CONVERSION INDIA PRIVATE LIMITED

(Civil Appeal No. 1647 of 2021)

APRIL 20, 2021

[ROHINTON FALI NARIMAN, B.R. GAVAI ANDHRISHIKESH ROY, JJ.]

Arbitration and Conciliation Act, 1996:

ss. 44, 2(1)(f), 2(2), 49 – Enforcement of foreign award –CDispute between appellant and respondent, two Indian companies,wherein the respondent company, subsidiary of French company– Execution of settlement agreement by the parties which providedfor arbitration in Zurich in accordance with the Rules of Conciliationand Arbitration of the International Chamber of Commerce – PartiesDagreeing to resolve the dispute by sole arbitrator appointed by theICC and the substantive law would be Indian law – Respondentchallenged the jurisdiction on the ground that two Indian partiescould not have chosen foreign seat – However, the arbitratorheld that the arbitration clause in the Settlement agreement as validand governing law to be Swiss law because the seat of arbitrationEwas Zurich, Switzerland, though Mumbai was designated as thevenue – Final award passed in favour of respondent – Respondentfiled enforcement proceedings before the High Court while appellantchallenged the final award – High Court upheld the enforcement ofthe arbitral award – On appeal, held: Seat of the arbitration remainsFZurich, Switzerland and venue of the hearing would be Mumbai,India – Closest connection test not applicable as seat was designatedby the parties and by the tribunal – Part I and Part II of the Act aremutually exclusive – It cannot be said that proviso to s. 2(2) is abridge that joined Part II to Part I – Furthermore, disputes arebetween two persons-two Indian companies, and the arbitration isGconducted at the seat designated by the parties, i.e. Zurich, beingin Switzerland, signatory to the New York Convention – Contextof s. 44 is party-neutral, having reference to the place at which theaward is made – Elusive expression “public policy” appearing in s.23 of the Contract Act is relative concept capable of modificationH

– There is nothing in either s. 23 or s. 28 which interdicts two Indianparties from getting their disputes arbitrated at neutral forumoutside India – Effect is to be given to the party autonomy, beingthe brooding and guiding spirit of arbitration – Plea that s. 10 ofthe Commercial Courts Act would apply, and thus, impugnedjudgment is to be set aside, as it was without jurisdiction, cannot beaccepted – Thus, two Indian parties can choose foreign seat ofarbitration to which New York Convention applies and the awardpassed by such forum is enforceable in India – Convention on theRecognition and Enforcement of Foreign Arbitral Awards, 1958 –Contract Act, 1872 – ss. 23 and 28 – Commercial Courts, CommercialDivision and Commercial Appellate Division of High Courts Act,2015 – s. 10.

s. 44 – Foreign award – Meaning of – Necessary ingredients– Explained.

s. 2(1)(f) – Expression “international commercial arbitration”– Definition of.

s. 28(1)(a) – Rules applicable to substance of dispute –Interpretation of s. 28(1)(a) – Held: s. 28(1)(a) makes no referenceto an arbitration being conducted between two Indian parties in acountry other than India – It cannot be held to interdict two Indianparties from resolving their disputes at neutral forum in countryother than India.

Disposing of the appeal, the Court

HELD: 1.1 Clause 6 of the settlement agreement wouldshow that arbitration is to be resolved “in Zurich” in accordancewith the Rules of Conciliation and Arbitration of the ICC. As perthis clause, Zurich was therefore, determined to be the juridicalseat of arbitration between the parties. At the Case ManagementConference, the arbitrator specifically decided that the venue ofthe hearing shall be Mumbai, India and the seat of the arbitrationof course remains Zurich, Switzerland. This arrangement has beenaccepted by both parties. [Paras 7, 8][561-E-F; 562-C-E, F-G]1.2 The closest connection test would only apply if it isunclear that seat has been designated either by the parties or

Aby the tribunal. In this case, the seat has clearly been designatedboth by the parties and by the tribunal, and has been accepted byboth the parties. Thus, it is not possible to accept the submissionthat the seat of arbitration ought to be held to be Mumbai in thefacts of the instant case. [Paras 9, 10][562-H; 563-A, C]

BEnercon (India) Ltd. v. Enercon GmbH (2014) 5 SCC 1: [2014] 2 SCR 855 – distinguished.

Mankastu Impex (P) Ltd. v. Airvisual Ltd. (2020) 5 SCC399 - referred to.

2.1 The Arbitration and Conciliation Act, 1996 is in fourCparts. Part I deals with arbitrations where the seat is in India andhas no application to foreign-seated arbitration. It is, therefore,a complete code in dealing with appointment of arbitrators,commencement of arbitration, making of an award and challengesto the aforesaid award as well as execution of such awards. OnDthe other hand, Part II is not concerned with the arbitralproceedings at all. It is concerned only with the enforcement of aforeign award, as defined, in India. Section 45 alone deals withreferring the parties to arbitration in the circumstances mentionedtherein. Barring this exception, in any case, Part II does not applyto arbitral proceedings once commenced in country outsideEIndia. [Para 11][563-D-F]

2.2 Even before the Arbitration Act of 1996, India, beingone of the earliest signatories to the New York Convention,legislated in accordance therewith and enacted the Foreign AwardsAct in 1961. Under section 6 of the Foreign Awards Act, whereFthe court is satisfied that the foreign award is enforceable, thecourt shall order the award to be filed and shall proceed topronounce judgment according to the award. This provision hassince been done away with by the Arbitration Act, 1996 as section49 of the Arbitration Act expressly provides that the award shallGbe deemed to be decree of the court. Thereafter, section 7 ofthe Foreign Awards Act enumerates grounds on which such foreignaward may be refused to be enforced. Obviously, under the earlierregime, there was no overlap between the Arbitration Act, 1940,which dealt only with domestic awards, and the Foreign Awards

Act. This situation continues in the current Arbitration Act, PartI and Part II of which have been held to be mutually exclusive.This being the case, it is little difficult to accede to any submissionthat would breach the wall between Parts I and II. The submissionthat the proviso to section 2(2) of the Arbitration Act is bridgewhich connects the two parts is rejected. As matter of fact,section 2(2) specifically states that Part I applies only wherethe place of arbitration is in India. It is settled law that aproviso cannot travel beyond the main enacting provision.[Paras 12, 13][563-F-G; 564-B-D; 567-G-H]

Bharat Aluminium Co. v. Kaiser Aluminium TechnicalServices Inc. (2012) 9 SCC 552 : [2012] 12 SCR 327– followed.

Union of India v. Dileep Kumar Singh (2015) 4 SCC421 : [2015] 2 SCR 882; DMRC v. Tarun Pal Singh(2018) 14 SCC 161 : [2017] 14 SCR 202; KandlaExport Corpn. v. OCI Corpn. (2018) 14 SCC 715 :[2018] 1 SCR 915; Mavilayi Service Co-operative BankLtd. v. Commissioner of Income Tax, Calicut 2021 SCCOnLine SC 16 – relied on.

2.3 As matter of fact, the reason for the insertion of theproviso to section 2(2) by the Arbitration and Conciliation(Amendment) Act, 2015 was because the judgment in BhatiaInternational’s case had muddied the waters by holding thatsection 9 would apply to arbitrations which take place outsideIndia without any express provision to that effect. The judgmentin Bhatia’ s case has been expressly overruled by five-JudgeBench in BALCO’s case. Pursuant thereto, proviso has nowbeen inserted to section 2(2) which only makes it clear that where,in an arbitration which takes place outside India, assets of one ofthe parties are situated in India and interim orders are requiredqua such assets, including preservation thereof, the courts inIndia may pass such orders. It is important to note that theexpression “international commercial arbitration” is specificallyspoken of in the context of place of arbitration being outsideIndia, the consequence of which is an arbitral award to be madein such place, but which is enforced and recognised under theprovisions of Part II of the Arbitration Act. The context of this

Aexpression is, therefore, different from the context of thedefinition of “international commercial arbitration” contained inSection 2(1)(f), which is in the context of such arbitration takingplace in India, which only applies “unless the context otherwiserequires”. The four sub-clauses contained in section 2(1)(f) wouldmake it clear that the definition of the expression “internationalBcommercial arbitration” contained therein is party-centric in thesense that at least one of the parties to the arbitration agreementshould, inter alia, be person who is national of or habituallyresident in any country other than India. On the other hand, when“international commercial arbitration” is spoken of in the contextCof taking place outside India, it is place-centric as is provided bysection 44 of the Arbitration Act. This expression, therefore, onlymeans that it is an arbitration which takes place between twoparties in territory outside India, the New York Conventionapplying to such territory, thus making it an “international”commercial arbitration. [Para 14][568-B-H]DBharat Aluminium Co. v. Kaiser Aluminium TechnicalServices Inc. (2012) 9 SCC 552 : [2012] 12 SCR 327;Bhatia International v. Bulk Trading S.A. (2002) 4 SCC105 : [2002] 2 SCR 411 – referred to.

E3.1 Under section 44 of the Arbitration Act, foreign awardis defined as meaning an arbitral award on differences betweenpersons arising out of legal relationships considered ascommercial under the law in force in India, in pursuance of anagreement in writing for arbitration to which the New YorkConvention applies, and in one of such territories as the CentralFGovernment, by notification, declares to be territories to whichthe said Convention applies. Thus, what is necessary for an awardto be designated as foreign award under section 44 are fouringredients: the dispute must be considered to be commercialdispute under the law in force in India, it must be made inGpursuance of an agreement in writing for arbitration, it must bedisputes that arise between “persons” (without regard to theirnationality, residence, or domicile), and the arbitration must beconducted in country which is signatory to the New YorkConvention. Ingredient (i) is undoubtedly satisfied on the factsof this case. Ingredient (ii) is satisfied given clause 6 of theHsettlement agreement. Ingredients (iii) and (iv) are also satisfiedon the facts of this case as the disputes are between two persons,i.e. two Indian companies, and the arbitration is conducted at theseat designated by the parties, i.e. Zurich, being in Switzerland, asignatory to the New York Convention. [Para 21][574-B-G]

3.2 The context of section 44 is party-neutral, havingreference to the place at which the award is made. For this reason,it is not possible to accede to the submission that the very basisof section 44 should be altered when two Indian nationals havetheir disputes resolved in country outside India; and that theexpression “unless the context otherwise requires” can be heldto undo the very basis of section 44 by converting it from seat-oriented provision in countries that are signatories to the NewYork Convention to person- oriented provision in which one ofthe parties to the arbitration agreement has to be foreign nationalor habitually resident outside India. In any case, the context ofsection 44 is very far removed from the context of an internationalcommercial arbitration in Part I which is defined for the purposesof section 11, section 28, section 29A(1), section 34(2A), andsection 43I, all of which occur in Part I and deal with arbitrationswhich take place in India. Also, the submission of the appellantwould involve bodily importing the expression “internationalcommercial arbitration” into section 44, which cannot be donebecause of the opening words of section 44, “In this Chapter”which is Chapter I of Part II, and then applying the definitioncontained in section 2(1)(f) of the Arbitration Act which, beingrestricted to Part I, must now be applied to Part II. No canon ofinterpretation would permit acceptance of such submission. Aforeign award cannot be refused to be enforced merely becauseit was made between two Indian parties, under pari materiaprovisions of the Foreign Awards Act. This Court cannot accedeto the submission that Atlas’s case cannot be regarded as anauthority for the proposition that sections 23 and 28 of the ContractAct are out of harm’s way when it comes to enforcing foreignaward under the Foreign Awards Act, 1961, where both partiesare Indian companies. [Paras 25, 26, 28 and 30][579-B-C;580-C-F; 583-A-B; 584-F-G]

AAtlas Export Industries v. Kotak & Co. (1999) 7 SCC61 : [1999] 2 Suppl. SCR 192 – relied on.

Vanguard Fire and General Insurance Co. Ltd. v. Fraserand Ross [1960] 3 SCR 857; Bennett Coleman & Co.(P) Ltd. v. Punya Priya Das Gupta (1969) 2 SCC 1 :B[1970] 1 SCR 181; Allied Motors (P) Ltd. v. CIT (1997)3 SCC 472 : [1997] 2 SCR 780; S.K. Gupta v. K.P.Jain (1979) 3 SCC 54 : [1979] 2 SCR 1184; State ofGujarat v. Manoharsinhji Pradyumansinhji Jadeja(2013) 2 SCC 300 : [2012] 11 SCR 507; Shayara Banov. Union of India (2017) 9 SCC 1: [2017] 9 SCR 797C– referred to.

Jacobs v. London County Council (1950) 1 All ER 737– referred to.

3.3 Under U.S. law, an arbitration agreement or award madebetween two U.S. citizens shall not fall under the New YorkDConvention unless such relationship involves properties locatedabroad, envisages performance of contract, entered in the U.S.,to take place abroad, or has some reasonable connection withone or more foreign states. No such caveat is entered when Indiaacceded to the New York Convention and enacted the ForeignEAwards Act and the Arbitration Act, 1996. On the contrary,“persons” mentioned in section 44 has no reference to nationality,residence or domicile. This is another important pointer to thefact that, unlike the U.S. Code, section 44 of the ArbitrationAct does not enter any such caveat. [Paras 31, 32][584-G-H;F585-A, D-E]3.4 Once it is found that parties by mutual agreement havedecided to resolve their dispute by arbitration and when they, ontheir own, chose to have the seat of arbitration in foreign country,then in view of the provisions of s. 2(2) of the Act of 1996, Part IGof the Act, will not apply in case where the place of arbitration isnot India and if Part I does not apply and if the agreement inquestion fulfils the requirement of s. 44 then Part II will applyand when Part II applies and it is found that agreement is not nullor void or inoperative, the bar created under s. 45 would comeinto play and if bar created under s. 45 comes into play then it isH

case where the Court below had no option but to refer theparties for arbitration as the bar under s. 45 would also apply andthe suit itself was not maintainable. [Para 33][594-A-D]

State of West Bengal v. Associated Contractors (2015)1 SCC 32 : [2014] 10 SCR 426 – relied on.

Sasan Power Limited v. North American CoalCorporation (India) Pvt. Ltd. 2015 SCC OnLine MP7417 – approved.

TDM Infrastructure (P) Ltd. v. UE Development India(P) Ltd. (2008) 14 SCC 271 : [2008] 8 SCR 775 –overruled.

Seven Islands Shipping Ltd. v. Sah Petroleums Ltd.(2012) 5 Mah LJ 822; M/s. Addhar Mercantile Pvt.Ltd. v. Shree Jagadamba Agrico Exports Pvt. Ltd.Arbitration Application No. 197 of 2014 (decided on12.06.2015) – disapproved.

Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. (2011) 8SCC 333 : [2011] 11 SCR 1; GMR Energy Limited v.Doosan Power Systems India CS (COMM) 447/2017(decided on 14.11.2017; Dholi Spintex v. Louis DreyfusCS (COMM) 286/2020 (decided on 24.11.2020) –referred to.

“New York Convention on the Recognition andEnforcement of Foreign Arbitral Awards” by ProfessorPieter Sanders (Netherlands International Law Review,Volume 6, Issue 1, March 1959); “InternationalCommercial Arbitration” by Gary B. Born (WoltersKluwer, 3rd Edn., 2021) – referred to.

4.1 The appellant’s submission that even if Atlas’s case isto be taken to be binding precedent, it contains no discussionon how section 23 of the Contract Act is not infracted and doesnot, in any case, deal with the submission based on section28(1)(a) and section 34(2A) of the Arbitration Act. The elusiveexpression “public policy” appearing in section 23 of the Contract

AAct is relative concept capable of modification in tune withthe strides made by mankind in science and law. [Paras 38,39][602-C-D; 603-C-D]

4.2 Freedom of contract needs to be balanced with clearand undeniable harm to the public, even if the facts of particularBcase do not fall within the crystallised principles enumerated inwell-established ‘heads’ of public policy. The question that thenarises is whether there is anything in the public policy of India,as so understood, which interdicts the party autonomy of twoIndian persons referring their disputes to arbitration at neutralforum outside India. [Para 49][612-F-G]C

Atlas Export Industries v. Kotak & Co. (1999) 7 SCC61 : [1999] 2 Suppl. SCR 192; Gherulal Parakh v.Mahadeodas Maiya [1959] Supp 2 SCR 406;Murlidhar Aggarwal v. State of U.P. (1974) 2 SCC 472: [1975] 1 SCR 575; Union of India v. Gopal ChandraDMisra (1978) 2 SCC 301 : [1978] 3 SCR 12; CentralInland Water Transport Corpn. v. Brojo Nath Ganguly(1986) 3 SCC 156 : [1986] 2 SCR 278; Rattan ChandHira Chand v. Askar Nawaz Jung (1991) 3 SCC 67 :[1991] 1 SCR 327; Renusagar Power Co. Ltd. v.EGeneral Electric Co. 1994 Supp (1) SCC 644 : [1993]3 Suppl. SCR 22; Zoroastrian Coop. Housing SocietyLtd. v. District Registrar, Coop. Societies (Urban) (2005)5 SCC 632 : [2005] 3 SCR 592; State of Rajasthan v.Basant Nahata (2005) 12 SCC 77 : [2005] 3 Suppl.SCR 1; Vodafone International Holdings BV v. UnionFof India (2012) 6 SCC 613:[2012] 1 SCR 573 –referred to.

Maxim Nordenfelt Guns and Ammunition Company v.Nordenfelt [1893] 1 Ch. 630 – referred to.

G4.3 It can be seen that exception 1 to section 28 of theContract Act specifically saves the arbitration of disputes betweentwo persons without reference to the nationality of persons whomay resort to arbitration. It is for this reason that this Court inAtlas’s case referred to the said exception to section 28 and foundthat there is nothing in either section 23 or section 28 whichH

interdicts two Indian parties from getting their disputes arbitratedat neutral forum outside India. [Para 50][612-G-H; 613-A]

4.4 The submission by the appellant, with specific referenceto section 28(1)(a) and section 34(2A) of the Arbitration Act, thatsince two Indian parties cannot opt out of the substantive law ofIndia and therefore, ought to be confined to arbitrations in India,Indian public policy, as reflected in these two sections, ought toprevail, cannot be accepted. It will be seen that section 28(1)(a)of the Arbitration Act, when read with section 2(2), section 2(6)and section 4, only makes it clear that where the place of arbitrationis situated in India, in an arbitration other than an internationalcommercial arbitration (i.e. an arbitration where none of theparties, inter alia, happens to be national of foreign country orhabitually resident in foreign country), the arbitral tribunal shalldecide the dispute in accordance with the substantive law for thetime being in force in India. [Para 51][613-A-D]

4.5 Section 28(1)(a) of the Arbitration Act makes noreference to an arbitration being conducted between two Indianparties in country other than India, and cannot be held, by sometortuous process of reasoning, to interdict two Indian parties fromresolving their disputes at neutral forum in country otherthan India. [Para 52][613-D-E]

4.6 Any dispute between Indian national who is habituallyresident in country outside India and an Indian national who ishabitually resident in India would attract the provisions of section2(1)(f)(i) and, consequently, section 28(1)(b) of the ArbitrationAct, in which case two Indian nationals would be entitled to havetheir dispute decided in India in accordance with the rules of lawdesignated by the parties as applicable to the substance of thedispute, which need not be Indian law. This, by itself, is strongindicator that section 28 of the Arbitration Act cannot be read inthe manner suggested by the appellant. [Para 53][613-E-F]

4.7 It will be seen that where the law of India prohibits acertain act, the conflict of law rules as set down in Dicey’sauthoritative treatise will take care of this situation in most casesas the arbitrators would then apply these rules on the ground of

Ainternational comity between nations in cases which arise betweentwo Indian nationals in an award made outside India, which wouldfall within the definition of “foreign award” under Section 44 ofthe 1996 Act. [Para 57][620-G-H]

Foster v. Driscoll 1929 1 Kings Bench 470; RegazzoniBv. KC Sethia [1958] A.C. 301 – referred to.

Dicey, Morris and Collins on the Conflict of Laws(Sweet & Maxwell, 15th Edn.) – referred to.

4.8 Even otherwise, ground may be made out under section48 against enforcement of foreign award where enforcement ofCsuch award would be contrary to the public policy of India. If, onthe facts of given case, it is found that two Indian nationals havecircumvented law which pertains to the fundamental policy ofIndia, such foreign award may then not be enforced under section48(2)(b) of the Arbitration Act. On the assumption that theDexample of the Benami Transactions Act pertains to thefundamental policy of Indian law, if the foreign award is contraryto such fundamental policy, such award will then not be enforcedin India. [Para 58][621-A-C]4.9 When it comes to the ground raised under sectionE34(2A) of the Arbitration Act, it is clear that in an internationalcommercial arbitration, say, between an Indian national habituallyresident outside India and an Indian national resident in India,even when the arbitration takes place in India resulting in anaward being made in India, the ground available under section34(2A) would not be available, as it would not apply to anFinternational commercial arbitration held in India. In agreeing toa neutral forum outside India, parties agree that instead of onebite at the cherry under section 34 of the Arbitration Act, wherean arbitration between two Indian nationals is conducted in India[with the grounds for setting aside the award being available underGsection 34(2A)], what is instead put in place by the parties is twobites at the cherry, namely, the recourse to court or tribunal ina country outside India for setting aside the arbitral award passedin that country on grounds available in that country (which maybe wider than the grounds available under section 34 of the

Arbitration Act), and then resisting enforcement under thegrounds mentioned in section 48 of the Arbitration Act. Thebalancing act between freedom of contract and clear andundeniable harm to the public must be resolved in favour offreedom of contract as there is no clear and undeniable harmcaused to the public in permitting two Indian nationals to avail ofa challenge procedure of foreign county when, after foreignaward passes muster under that procedure, its enforcement canbe resisted in India on the grounds contained in section 48 of theArbitration Act, which includes the foreign award being contraryto the public policy of India. [Para 59][621-C-G]

5. The decks have now been cleared to give effect to partyautonomy in arbitration. Party autonomy has been held to be thebrooding and guiding spirit of arbitration. Nothing stands inthe way of party autonomy in designating seat of arbitrationoutside India even when both parties happen to be Indiannationals. [Paras 60, 61][621-G-H; 622-A; 627-E-F]

Bharat Aluminium Co. v. Kaiser Aluminium TechnicalServices Inc. (2016) 4 SCC 126 : [2016] 1 SCR 364;Centrotrade Minerals & Metal Inc. v. Hindustan CopperLtd. (2017) 2 SCC 228 : [2016] 9 SCR 83 – relied on.

6.1 The appellant relied upon section 10 read with section21 of the Commercial Courts Act to argue that in all cases betweenIndian nationals which result in awards delivered in countryoutside India, section 10(3) would apply, as result of which theimpugned judgment having been made by High Court, is madewithout jurisdiction, cannot be accepted. It must be rememberedthat when foreign award is sought to be enforced under Part IIof the Arbitration Act, the explanation to section 47 makes itclear that it is the High Court alone which is the court on whosedoors the applicant must knock. This is sought to be answeredby the appellant by stating that since the explanation to section47 is in direct collision with section 10(3) of the CommercialCourts Act, vide section 21 of the Commercial Courts Act, section10(3) would prevail over the explanation to section 47. [Paras62, 63, 69][627-F-G; 628-G-H; 632-D-E]

A6.2 Section 2(1)(f) of the Arbitration Act which defines theexpression “international commercial arbitration” is only for alimited purpose, namely, for the purpose of Part I of the ArbitrationAct. Under section 2(2) of the Commercial Courts Act, wordsand expressions used and not defined in the Commercial CourtsAct but defined in the CPC and the Evidence Act, 1872 shallBhave the same meanings respectively assigned to them in thatCode and the Act. Conspicuous by its absence are definitionscontained in the Arbitration Act. [Para 64][629-B-C]6.3 “International commercial arbitration”, when used inthe proviso to section 2(2) of the Arbitration Act, does not referCto the definition contained in section 2(1)(f) but would havereference to arbitrations which take place outside India, awardsmade in such arbitrations being enforceable under Part II of theArbitration Act. It will be noted that section 10(1) applies tointernational commercial arbitrations, and applications or appealsDarising therefrom, under both Parts I and II of the ArbitrationAct. When applications or appeals arise out of such arbitrationsunder Part I, where the place of arbitration is in India,undoubtedly, the definition of “international commercialarbitration” in section 2(1)(f) will govern. However, when appliedto Part II, “international commercial arbitration” has referenceEto place of arbitration which is international in the sense of thearbitration taking place outside India. Thus construed, there isno clash at all between section 10 of the Commercial Courts Actand the explanation to section 47 of the Arbitration Act, as anarbitration resulting in foreign award, as defined under sectionF44 of the Arbitration Act, will be enforceable only in High Courtunder section 10(1) of the Commercial Courts Act, and notin district court under section 10(2) or section 10(3).[Para 66][629-D-G]

6.4 The substantive law as to appeals and applications isGlaid down in the Arbitration Act whereas the procedure governingthe same is laid down in the Commercial Courts Act. In thiscontext, it has also been held that the Arbitration Act is specialAct vis-à-vis the Commercial Courts Act which is general, andwhich applies to the procedure governing appeals and applicationsin cases other than arbitrations as well. It is interesting to noteH

that the Arbitration and Conciliation (Amendment) Act, 2015 andthe Commercial Courts Act, 2015, both came into effect from23.10.2015. It has been held that even later general law whichcontains non-obstante clause does not override special law asboth must be held to operate. [Paras 67, 68][629-G-H; 630-A-B;631-D-E]

BGS SGS SOMA JV v. NHPC (2020) 4 SCC 234; KandlaExport Corpn. v. OCI Corpn. (2018) 14 SCC 715 :[2018] 1 SCR 915; R.S. Raghunath v. State ofKarnataka, (1992) 1 SCC 335 : [1991] 1 Suppl. SCR 387 – referred to.

7.1 The respondent, by way of cross objection, challengedthe finding of the Gujarat High Court by the impugned judgmentthat the section 9 application was not maintainable by reason ofthe expression “international commercial arbitration” appearingin the proviso to section 2(2) having the meaning to be ascribedby section 2(1)(f) of the Arbitration Act. This view of the law isincorrect. Consequently, this part of the judgment is set aside, itbeing held that the application made by the respondent undersection 9 would be maintainable. [Para 70][632-E-G]

7.2 The impugned judgment of the High Court is upheld,except for the finding on the s. 9 application of the respondentbeing held to be non-maintainable. [Para 71][632-G]

Sasan Power Ltd. v. North American Coal Corporation(India) Pvt. Ltd. (2016) 10 SCC 813 : [2016] 6 SCR809 – referred to.

[2021] 4 S.C.R.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1647of 2021.

From the Judgment and Order dated 03.11.2020 of the High Courtof Gujarat at Ahmedabad in Petition under Arbitration Act No. 131 of2019.

Tushar Hemani, Sr. Adv., Dhaval Shah, Sharvil Pathak, UnmeshShukla, Ms. Aditi Sheth, Ms. Anushree Prashit Kapadia, Adv. for theAppellant.

Nakul Dewan, Sr. Adv., Ms. Shaheen Parikh, Ms. Shalaka Patil,Surya Karan Sambyal, Rahul Mantri, Ms. Anushka Shah, Sambit Nandafor M/S. Cyril Amarchand Mangaldas, Advs. for the Respondent.

The Judgment of the Court was delivered by

R. F. NARIMAN, J.

1. Leave granted.

2. The present appeal raises an interesting question – as to whethertwo companies incorporated in India can choose forum for arbitrationoutside India – and whether an award made at such forum outside India,to which the Convention on the Recognition and Enforcement of ForeignArbitral Awards, 1958 [“New York Convention”] applies, can be saidto be “foreign award” under Part II of the Arbitration and ConciliationAct, 1996 [“ArbitrationAct”] and be enforceable as such.

Factual Background

3.1. The appellant is company incorporated under the CompaniesAct, 1956 with its registered office at Ahmedabad, Gujarat. Therespondent is company incorporated under the Companies Act, 1956with its registered office at Chennai, Tamil Nadu, and is 99% subsidiaryof General Electric Conversion International SAS, France, which in turnis subsidiary of the General Electric Company, United States.

3.2. In 2010, the appellant issued three purchase orders to therespondent for supply of certain converters. Pursuant to these purchaseorders, the respondent supplied six converters to the appellant. Disputes

Aarose between the parties in relation to the expiry of the warranty of thesaid converters. In order to resolve these disputes, the parties enteredinto settlement agreement dated 23.12.2014. Under clauses 5.1 and5.2 of the settlement agreement, the respondent agreed to provide certaindelta modules along with warranties on these modules for the workingof the converter panel. Clause 6 of the settlement agreement containedBthe dispute resolution clause which reads as follows:

“6. Governing Law and Settlement of Dispute

6.1 Any dispute or difference arising out of or relating to thisagreement shall be resolved by the Parties in an amicable way.C(A minimum of 60 days shall be used for resolving the dispute inamicable way before same can be referred toarbitration).

6.2 In case no settlement can be reached through negotiations, alldisputes, controversies or differences shall be referred to and finallyresolved by Arbitration in Zurich in the English language, inaccordance with the Rules of Conciliation and Arbitration of theDInternational Chamber of Commerce, which Rules are deemedto be incorporated by reference into this clause. The ArbitrationAward shall be final and binding on both the parties.

6.3 The Agreement (together with any documents referred toEherein) constitutes the whole agreement between the Parties andit is hereby expressly declared that no variation and / oramendments hereof be effective unless mutually agreed upon andmade in writing.”

3.3. Disputes arose between the parties pursuant to the settlementFagreement whereby the appellant claimed that warranties that weresupposed to be given for converters were not so given, whereas therespondent argued that the warranties covered only the delta modulesand not the converters. Thus, on 03.07.2017, the appellant issued requestfor arbitration to the International Chamber of Commerce [“ICC”]. On18.08.2017, the parties agreed to resolution of disputes by the soleGarbitrator appointed by the ICC. It was agreed between the parties, aswas reflected in the request for arbitration and in the terms of referenceto arbitration, that the substantive law applicable to the dispute would beIndian law.

3.4. The respondent filed preliminary application challengingHthe jurisdiction of the arbitrator on the ground that two Indian parties

could not have chosen foreign seat of arbitration. Importantly, theappellant opposed the said application and asserted that there was nobar in law from this being done. By Procedural Order No.3 dated20.02.2018, the learned sole arbitrator, Mr. Ian Leonard Meakin, dismissedthe respondent’s preliminary application, holding as follows:

“The Tribunal finds that two Indian parties can arbitrate outsideIndia. The Tribunal is persuaded that the Supreme Court of India’sdecision in Reliance Industries Ltd v. Union of India (2014)7SCC 603 (Exhibit CLM-3) is leading authority. This has beenconfirmed by the Supreme Court of India in Sasan Power Limitedv. North American Coal Corporation India Private Limited(2016) 10 SCC 813 (RL-6), which at an earlier instance beforethe High Court of Madhya Pradesh 2016 (2) ARBLR 179 (MP),rendered on 11.09.2015, held that two Indiancompanies canarbitrate outside of India.

Furthermore, the earlier case of Atlas Export Industries v. Kotak& Company (1999) 7 SCC 61,which was applied in Sasan, foundthat contract which is unlawful under section 23 of theIndianContract Act 1872, because it breaches Indian public policy, wouldbe void but that” merely because the arbitrators are situated ina foreign country cannot by itself be enough to nullify thearbitration agreement when the parties have with their eyesopen willingly entered into the agreement” (p.65, para ofjudgment). Such is the case here where the parties freely agreedon Zurich as the seat of the arbitration.

This position has been followed in recent decision of the DelhiHigh Court in GMR Energy Ltd. v. Doosan Power Systems IndiaPvt. Ltd. on 14 November 2017 CS (Comm) 447/2017 (RL-7)applying Atlas in allowing two Indian parties to arbitrate outsideIndia. The Tribunal notes the Respondent’s contention that thiscase is “expected to be appealed” (Respondent’s PreliminaryApplication dated 9 December 2017, para 23) but the Tribunalmust deal with the law as it finds it at present and no doubt theFinal Award in the present case will precede any exhaustive appealin India in GMR.

Respondent’s pleadings in reliance, inter alia, on TDMInfrastructure Private Limited v. UED evelopment India

Private Limited (2008) 14 SCC 271 are, in the Tribunal’s finding,misplaced because although it is accepted that two Indian nationalsshould, as matter of Indian law, not be permitted to derogatefrom Indian substantive law, this being part of the public policy ofthe country, this fails to distinguish between the lex arbitri andthe lex causae. In the present case,the parties have not chosen aforeign substantive law, only foreign seat.

The Respondent also relied on M/s Addhar Mercantile PrivateLimited v. Shree Jagadamba Agrico Exports Pvt. Ltd. (2015)SCC Online Bom 7752, which the Respondent submitted followedTDM (RL-4). However, although the Tribunal is aware that thisdecision has been criticised because although the court did notexpressly find that two parties could not opt for arbitration outsideIndia, the court’s finding that Indian parties cannot derogate fromIndian lawbecause that would violate Indian public policy has ledto the judgment being interpreted wrongly to imply that Indianparties cannot choose foreign seat. That said, Addhar is in anyevent first instance decision and the higher authorities of theIndian Supreme Court prevail.

Finally, the cases of Enercon (India) Limited v. Enercon GMBH(2014) 5SCC 1 and Bharat Aluminium Co. v. Kaiser AluminiumEInc. (2012) 9 SCC 552 relied on by the Respondent in relation toits submissions that the closest and most real connection test underIndian law do not assist the Respondent because that test is onlyrelevant where the seat is unclear. Moreover, Bharat clearly heldthat the applicability of section 28 of the Indian Act is restricted tothe substantive law of the contract and does not apply to the seatFof the arbitration.

Conclusion

For the reasons set out above, the Tribunal therefore finds thatthe arbitration clause in the Settlement Agreement is valid andGwill proceed to apply the Swiss Act because the seat of thearbitration is Zurich, Switzerland.”

3.5. This procedural order was not challenged by either of theparties. Vide the said procedural order, the seat of the arbitration wasstated to be Zurich, Switzerland. The respondent suggested Mumbai,India as convenient venue in which to hold arbitration proceedings asH

costs would be reduced thereby. The appellant objected to this suggestion.At the Case Management Conference dated 28.06.2018, the learnedarbitrator decided that though the seat is in Zurich, all hearings will beheld in Mumbai, acceding to the application made by the respondent.Since the mountain did not come to Muhammad, Muhammad, in theform of the learned arbitrator, went to the mountain and held all sittingsat the convenient venue in Mumbai.

3.6 final award dated 18.04.2019 was passed by the learnedarbitrator in which the appellant’s claim was rejected. The learnedarbitrator held:

“Operative Part

227.Based on the foregoing, the Arbitral Tribunal hereby finds,holds and orders:

Preliminary Issues

A. The seat of the arbitration is Zurich, Switzerland.

On the Merits

B.The Claimant’s claims for breach of contract, damages andinterest thereon are rejected.

C.The Claimant shall pay to the Respondent INRE25,976,330.00 and US$ 40,000.00 in legal costs andexpenses with accumulated interest, if any, inaccordancewith the Indian Interest Act, 1978.

D.All other claims of either party, to the extent thatthey exist,are dismissed.

Made in Zurich, this 18[th] day of April 2019"

3.7. After the passing of the final award, the respondent calledupon the appellant to pay the amounts granted vide the said award. Asthe appellant failed to oblige, the respondent initiated enforcementproceedings under sections 47 and 49 of the Arbitration Act before theHigh Court of Gujarat, within whose jurisdiction the assets of the appellantwere located. At this stage, the appellant did complete volte-face andasserted that the seat of arbitration was really Mumbai, where all thehearings of the arbitral proceedings took place. So asserting, the appellantfiled proceedings challenging the said final award under section 34 of

Athe Arbitration Act, being CMA No.18 of 2019 before the Small CausesCourt, Ahmedabad which was then transferred to the Commercial Court,Ahmedabad and renumbered as CMA No.76 of 2020. An applicationfiled under Order 7 Rule 11 of the Code of Civil Procedure, 1908 [“CPC”]by the respondent was rejected by the Commercial Court, Ahmedabad.At present, the proceedings under section 34 of the Arbitration Act andBthe respondent’s application under Order 21 of the CPC for executionof the final award are at standstill in view of the appeal before us.

The Appellant’s Case:

4.1. Mr. Tushar Himani, learned Senior Advocate appearing onCbehalf of the appellant, argued that two Indian parties cannot designatea seat of arbitration outside India as doing so would be contrary to section23 of the Indian Contract Act, 1872 [“ContractAct”] read with section28(1)(a) and section 34(2A) of the Arbitration Act. To buttress thissubmission, Mr. Himani pointed out the provisions of the Prohibition ofBenami Property Transactions Act, 1988 [“Benami Transactions Act”]Dwhich cannot be bypassed if two Indians are to apply only the substantivelaw of India. However, by designating seat outside India, it is open totwo Indian parties to opt out of the substantive law of India which itselfwould be contrary to the public policy of India.4.2. He then argued that foreign awards contemplated under PartEII of the Arbitration Act arise only from international commercialarbitrations. “International commercial arbitration”, as has been definedin section 2(1)(f) of the Arbitration Act, would make it clear that therehas to be foreign element when parties arbitrate outside India, theforeign element being that at least one of the parties is, inter alia, aFnational of country other than India, or habitually resident in countryother than India, or body corporate incorporated outside India. For thisreason, the award passed in the present case cannot be designated as aforeign award under Part II of the Arbitration Act. To buttress thissubmission, he relied heavily upon the judgment of learned Single Judgeof this Court in TDM Infrastructure (P) Ltd. v. UE DevelopmentGIndia (P) Ltd., (2008) 14 SCC 271 [“TDM”] and two judgments of theBombay High Court.

4.3. He then sought to distinguish this Court’s judgment in AtlasExport Industries v. Kotak & Co., (1999) 7 SCC 61 [“AtlasExport”], arguing that the specific argument made under section 23 ofH

the Contract Act was not dealt with by the Court and that, in any case,ultimately, the Court did not allow the appellant in that case to take upthis plea as it had not been taken up in the courts below.

4.4. Mr. Himani also argued that the judgment of the MadhyaPradesh High Court in Sasan Power Limited v. North AmericanCoal Corporation (India) Pvt. Ltd., 2015 SCC OnLine MP 7417[“Sasan I”], which decided that two Indian parties can choose foreignseat outside India for the purpose of resolving their disputes, was basedon an incorrect appreciation of facts, as observed in the appeal to theSupreme Court in Sasan Power Ltd. v. North American CoalCorporation (India) Pvt. Ltd., (2016) 10 SCC 813 [“Sasan II”].

4.5. Going to the language of section 44 of the Arbitration Act,Mr. Himani stressed upon the expression “unless the context otherwiserequires” and cited several judgments to show that the context of section44 is that of an international commercial arbitration and cannot, therefore,apply to foreign award between two Indian parties without theinvolvement of foreign element. He also relied heavily upon the 246[th]Report of the Law Commission of India of August 2014 whichrecommended amendments to the Arbitration Act, and particularly, thesubstitution of section 2(1)(e) and the explanation to section 47. Hestressed the fact that both these amendments were necessary to ensurethat it is the High Court that exercises jurisdiction in all cases ofinternational commercial arbitration. For this purpose, he relied upon thedomestic arbitration law of the United States [“U.S.”] to show that evenunder the said law, it is only when an agreement or award between twoU.S. citizens involves some foreign element that such arbitration cantake place abroad. He buttressed these submissions by referring to theproviso to section 2(2) of the Arbitration Act which, according to him,furnished bridge that joined Part II to Part I, as result of which itbecame clear that section 44 refers only to international commercialarbitrations, as is stated in the proviso to section 2(2).

4.6. He then went on to argue that the Arbitration Act is self-contained code, as has been held by several judgments of this Court, andthat when there is no foreign element involved in an award made inZurich between two Indian companies, such award cannot be the subjectmatter of challenge or enforcement either under Part I or Part II of theArbitration Act.

A4.7. Mr. Himani then relied heavily upon section 10 of theCommercial Courts, Commercial Division and Commercial AppellateDivision of High Courts Act, 2015 [“Commercial Courts Act”] whichalso recognises only two categories of arbitrations – internationalcommercial arbitration and other than international commercialarbitration. He argued that there is head-on conflict between sectionB10(3) of the Commercial Courts Act and section 47 of the ArbitrationAct, as result of which the former must prevail. For this purpose, herelied upon the non-obstante clause in section 21 of the CommercialCourts Act. This being the case, in any case, the impugned judgmentmade by the Gujarat High Court has to be set aside as it was madeCwithout jurisdiction because even as per the impugned judgment, thepresent is not case of an international commercial arbitration but insteadfalls under the second category of “other than international commercialarbitration”, as result of which only the district court would havejurisdiction.D4.8. He finally argued that going by the closest connection test,

D4.8. He finally argued that going by the closest connection test,the seat of arbitration can only be held to be Mumbai, and for this purpose,he relied upon Enercon (India) Ltd. v. Enercon GmbH, (2014) 5SCC 1 [“Enercon”]. According to him, since every factor connectedthe arbitration in the present case to India, with no foreign elementinvolved, applying this test, the seat would necessarily be Mumbai.EConsequently, he argued that Zurich, at best, could be stated to be a“salutary seat”. This being so, obviously Part II of the Arbitration Actwould not apply and the judgment has to be set aside on this score also.Despite the fact that in the written submissions before us, Mr. Himaniargued, without prejudice, that the award would not be enforceable underFsection 48 of the Arbitration Act, he very fairly did not press this issue.

The Respondent’s Case:

5.1. Mr. Nakul Dewan, learned Senior Advocate appearing onbehalf of the respondent, first pointed out that the appellant argued theexact opposite of what it itself sought under Procedural Order No.3Gdated 20.02.2018 before the arbitrator. Having argued that two Indiancompanies can agree to have seat of arbitration outside India, and thatin the present case, that seat was Zurich, and having opposed any hearingsbeing held in Mumbai, it would now not be open to the appellant to arguethe exact opposite before this Court only because the final award wasHmade against it.

5.2. Mr. Dewan then argued that Part I and Part II of theArbitration Act have been held to be mutually exclusive and pointed outthe fundamental fallacy contained in the argument of Mr. Himani to tryand import the definition of international commercial arbitration fromPart I of the Arbitration Act into section 44 via the expression “unlessthe context otherwise requires” contained in section 44, and the so-called bridge between Parts I and II contained in the proviso to section2(2). According to him, section 44 is modelled on the New YorkConvention which only requires “persons”, both of whom can be Indian,having disputes arising out of commercial legal relationships, which areto be decided in the territory of State outside India, which State is asignatory to the New York Convention. He then argued that any attemptto breach the wall created between Part I and Part II, which have beenheld to be mutually exclusive in Bharat Aluminium Co. v. KaiserAluminium Technical Services Inc., (2012) 9 SCC 552 [“BALCO”],cannot be countenanced by this Court.5.3. He further argued that unlike the definition of “internationalcommercial arbitration” contained in section 2(1)(f) in Part I, nationality,domicile or residence of parties is irrelevant for the purpose of applicabilityof section 44 of the Arbitration Act. As matter of fact, according tothe learned Senior Advocate, this is no longer res integra as it has beenexpressly decided under the pari materia provisions of the ForeignAwards (Recognition and Enforcement) Act, 1961 [“Foreign AwardsAct”] in Atlas (supra) that two Indian parties can enter into an arbitrationagreement with seat outside India, which would result in an award thatwould then have to be enforced as foreign award.

5.4. He also relied upon the judgment of the Madhya PradeshHigh Court in Sasan I (supra) and argued that, in appeal, the SupremeCourt did not dislodge any of the findings of the High Court but insteadproceeded on the basis that the arbitration was not between only twoIndian companies. He then argued, relying upon commentary onInternational Commercial Arbitration, authored by Prof. Eric E. Bergstenand published by the United Nations Conference on Trade andDevelopment in 2005 [“UNCTAD Commentary on InternationalCommercial Arbitration”], that parties being from the same State canagree to have their disputes resolved in State other than the State towhich they belong, as result of which the New York Convention willthen apply to enforce the aforesaid foreign award.

A5.5. He then went on to argue that neither section 23 nor section28 of the Contract Act proscribe the choice of foreign seat in arbitration.As matter of fact, the exception to section 28 of the Contract Actexpressly excepts arbitration from the clutches of section 28, which isan express approval to party autonomy which is the very basis of theArbitration Act. He also argued that section 23 of the Contract Act,Bwhen it speaks of “public policy”, must be confined to clear andincontestable cases of harm to the public and cited several cases tobuttress this proposition.

5.6. In any case, he combated Mr. Himani’s argument by referringto paragraph 118 of BALCO (supra) to argue that section 28(1) of theCArbitration Act would apply only when the arbitration takes place inIndia and not when the seat is outside India. Equally, grounds availablefor challenge, which would no longer be available as result of twoparties going abroad to resolve their differences, are waivable, and bothparties have, in this case, substituted the challenge to be made to anDaward under section 34 of the Arbitration Act with two bites at thecherry – first, by challenge under Swiss law to the award in Zurich,and second, by resisting enforcement under the grounds contained insection 48 of the Arbitration Act.

5.7. He then refuted Mr. Himani’s contention that the expressionE“unless the context otherwise requires” can be used to defeat the verybasis of section 44, arguing that section 44 only requires that the seat ofarbitration be in territory which is outside India and cited case law forthis proposition.

5.8. He also refuted Mr. Himani’s argument that Mumbai shouldFbe the seat, as the closest connection test applies only absent thedetermination of seat. In the present case, the arbitration clause in thesettlement agreement, together with the procedural orders passed bythe arbitrator, designated Zurich as the seat and Mumbai only as aconvenient venue, which has been accepted by both parties, and mustgovern the arbitral proceedings in this case.G

5.9. He then proceeded to distinguish the three judgments reliedupon by Mr. Himani to demonstrate that two Indian parties can choosea foreign seat. He then went on to argue that both in the proviso tosection 2(2) and section 10 of the Commercial Courts Act, the phrase“international commercial arbitration” is not governed by the definitionH

contained in section 2(1)(f) but would only refer to arbitrations in whichAthe seat is outside India.

The Arbitration and Conciliation Act, 1996

6. Having heard learned counsel for both parties, it is firstnecessary to set out the relevant provisions of Part I and Part II of theArbitration Act.

“2. Definitions.—(1) In this Part, unless the context otherwiserequires,—

(e) “Court” means—

(i)in the case of an arbitration other than internationalcommercial arbitration, the principal civil court oforiginal jurisdiction in district, and includes the HighCourt in exercise of its ordinary original civiljurisdiction, having jurisdiction to decide the questionsDforming the subject matter of the arbitration if thesame had been the subject matter of suit, but doesnot include any civil court of grade inferior to suchprincipal civil court, or any Court of Small Causes;

(ii)in the case of international commercial arbitration,Ethe High Court in exercise of its ordinary originalcivil jurisdiction, having jurisdiction to decide thequestions forming the subject matter of the arbitrationif the same had been the subject matter of suit, andin other cases, High Court having jurisdiction toFhear appeals from decrees of courts subordinate tothat High Court;

(f) “international commercial arbitration” means an arbitrationrelating to disputes arising out of legal relationships, whethercontractual or not, considered as commercial under the law inforce in India and where at least one of the parties is—

(i)an individual who is national of, or habitually residentin, any country other than India; or

(ii)a body corporate which is incorporated in any countryother than India; or

(iii)an association or body of individuals whose centralmanagement and control is exercised in any countryother than India; or

(iv)the Government of foreign country;

Scope

(2) This Part shall apply where the place of arbitration is in India.

Provided that subject to an agreement to the contrary, the provisionsof Sections 9, 27 and clause (b) of sub-section (1) and sub-section(3) of Section 37 shall also apply to international commercialarbitration, even if the place of arbitration is outside India, and anarbitral award made or to be made in such place is enforceableand recognised under the provisions of Part II of this Act.

Construction of references

(6) Where this Part, except Section 28, leaves the parties free todetermine certain issue, that freedom shall include the right ofthe parties to authorise any person including an institution, todetermine that issue.

(7) An arbitral award made under this Part shall be considered asa domestic award.”

party may choose to waive its right to object under section 4 ofthe Arbitration Act, which reads as follows:

“4. Waiver of right to object.—A party who knows that—

(a)any provision of this Part from which the parties mayderogate, or

(b)any requirement under the arbitration agreement, hasnot been complied with and yet proceeds with thearbitration without stating his objection to such non-compliance without undue delay or, if time-limit isprovided for stating that objection, within that periodof time, shall be deemed to have waived his right toso object.”

The rules applicable to the substance of dispute are set out insection 28 as follows:

“28. Rules applicable to substance of dispute.—(1) Wherethe place of arbitration is situated in India,—

(a)in an arbitration other than an international commercialarbitration, the arbitral tribunal shall decide the disputesubmitted to arbitration in accordance with the substantivelaw for the time being in force in India;

(b)in international commercial arbitration,—

(i)the arbitral tribunal shall decide the dispute inaccordance with the rules of law designated by theparties as applicable to the substance of the dispute;

(ii)any designation by the parties of the law or legalsystem of given country shall be construed, unlessotherwise expressed, as directly referring to theDsubstantive law of that country and not to its conflictof laws rules;

(iii)failing any designation of the law under sub-clause(ii) by the parties, the arbitral tribunal shall apply therules of law it considers to be appropriate given allthe circumstances surrounding the dispute.

(2) The arbitral tribunal shall decide ex aequo et bono oras amiable compositeur only if the parties have expresslyauthorised it to do so.

(3) While deciding and making an award, the arbitral tribunal shall,in all cases, take into account the terms of the contract and tradeusages applicable to the transaction.”

Recourse to court against an arbitral award may be made by anapplication for setting aside such award, inter alia, under section 34(2A)of the Arbitration Act, which is set out as follows:

“34. Application for setting aside arbitral award.—

(2A) An arbitral award arising out of arbitrations other thaninternational commercial arbitrations, may also be set aside by

560SUPREME COURT REPORTS

Athe court, if the court finds that the award is vitiated by patentillegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the groundof an erroneous application of the law or by reappreciation ofevidence.”

BPart II of the Arbitration Act deals with enforcement of foreignawards in India, and contains two chapters, Chapter I of which dealswith the enforcements of awards to which the New York Conventionapplies. Sections 44, 46, 47, and 49, contained in Chapter I of Part II ofthe Arbitration Act, are extracted as follows:C“44. Definition.—In this Chapter, unless the context otherwiserequires, “foreign award” means an arbitral award on differencesbetween persons arising out of legal relationships, whethercontractual or not, considered as commercial under the law inforce in India, made on or after the 11[th] day of October, 1960—

D(a)in pursuance of an agreement in writing for arbitration towhich the Convention set forth in the First Schedule applies,and

(b)in one of such territories as the Central Government, beingsatisfied that reciprocal provisions have been made may,Eby notification in the Official Gazette, declare to be territoriesto which the said Convention applies.”

“46. When foreign award binding.—Any foreign award whichwould be enforceable under this Chapter shall be treated as bindingfor all purposes on the persons as between whom it was made,Fand may accordingly be relied on by any of those persons by wayof defence, set-off or otherwise in any legal proceedings in Indiaand any references in this Chapter to enforcing foreign awardshall be construed as including references to relying on an award.”

“47. Evidence.—(1) The party applying for the enforcement ofGa foreign award shall, at the time of the application, produce beforethe Court—

(a)the original award or copy thereof, duly authenticated inthe manner required by the law of the country in which itwas made;

(b)the original agreement for arbitration or duly certified copyAthereof; and

(c)such evidence as may be necessary to prove that the awardis foreign award.

(2) If the award or agreement to be produced under sub-section(1) is in foreign language, the party seeking to enforce the awardshall produce translation into English certified as correct by adiplomatic or consular agent of the country to which that partybelongs or certified as correct in such other manner as may besufficient according to the law in force in India.

Explanation.—In this section and in the sections following in thisChapter, “Court” means the High Court having original jurisdictionto decide the questions forming the subject matter of the arbitralaward if the same had been the subject matter of suit on itsoriginal civil jurisdiction and in other cases, in the High Court havingjurisdiction to hear appeals from decrees of courts subordinate tosuch High Court.”

“49. Enforcement of foreign awards.—Where the Court issatisfied that the foreign award is enforceable under this Chapter,the award shall be deemed to be decree of that Court.”

Seat of the arbitral proceedings in the present case

7. Clause 6 of the settlement agreement extracted above wouldshow that arbitration is to be resolved “in Zurich” in accordance withthe Rules of Conciliation and Arbitration of the ICC. In similarcircumstances, in Mankastu Impex (P) Ltd. v. Airvisual Ltd., (2020)5 SCC 399, where disputes were to be resolved by arbitration“administered in Hong Kong”, the Court concluded:

“21. In the present case, the arbitration agreement entered intobetween the parties provides Hong Kong as the place of arbitration.The agreement between the parties choosing “Hong Kong” asthe place of arbitration by itself will not lead to the conclusion thatthe parties have chosen Hong Kong as the seat of arbitration.The words, “the place of arbitration” shall be “Hong Kong”, haveto be read along with Clause 17.2. Clause 17.2 provides that“… any dispute, controversy, difference arising out of orrelating to MoU shall be referred to and finally resolved by

Aarbitration administered in Hong Kong….”. On plain readingof the arbitration agreement, it is clear that the reference to HongKong as “place of arbitration” is not simple reference as the“venue” for the arbitral proceedings; but reference to HongKong is for final resolution by arbitration administered in HongKong. The agreement between the parties that the dispute “shallBbe referred to and finally resolved by arbitration administeredin Hong Kong” clearly suggests that the parties have agreedthat the arbitration be seated at Hong Kong and that laws of HongKong shall govern the arbitration proceedings as well as havepower of judicial review over the arbitration award.”C

(emphasis in original)

As per this clause, Zurich was therefore determined to be thejuridical seat of arbitration between the parties.

8. At the Case Management Conference held on 28.06.2018, theDlearned arbitrator specifically decided:

“3. The venue of the hearing shall be Mumbai, India. The seat ofthe arbitration of course remains Zurich, Switzerland. I am gratefulto the Respondent for offering to assist with the organisation ofthe hearing in India. The consequence of holding the hearing inEMumbai will of course be dealt with in the Award on costs,depending on the outcome. The Tribunal is of the view that it iscost efficient to hold the hearing in India where the parties arebased, the Respondent’s five witnesses are based, whereRespondent’s legal team are based and Claimant’s co-counsel isbased. This means that the Claimant’s lead counsel, the Claimant’sFsole witness and the sole arbitrator must travel to India. …”This arrangement has been accepted by both parties. Even in thefinal award dated 18.04.2019, the learned arbitrator held:

“82. For the reasons set out above, the Tribunal therefore hasheld in Procedural Order No.3 and hereby finds that the arbitrationGclause in the Settlement Agreement is valid and proceeds to applythe Swiss Act because the seat of theArbitration is Zurich,Switzerland.”

9. The closest connection test strongly relied upon by Mr. Himaniwould only apply if it is unclear that seat has been designated either byH

the parties or by the tribunal. In this case, the seat has clearly beendesignated both by the parties and by the tribunal, and has been acceptedby both the parties. The judgment in Enercon (supra), relied upon byMr. Himani, applied the aforesaid test only because the arbitration clausetherein provided that London was the “venue” and not the seat. It was,therefore, pointed out by this Court that given the various factorsconnecting the dispute to India and the absence of any factors connectingit to England, on the facts of that case, there was no necessity to regardLondon as the seat when it was, in fact, only the venue (see paragraphs98-103, 114-116, and 128).

10. For this reason, it is not possible to accept Mr. Himani’scontention that the seat of arbitration ought to be held to be Mumbai inthe facts of the present case.

Part I and Part II of the Arbitration Act are mutuallyexclusive

11. The Arbitration Act is in four parts. Part I deals with arbitrationswhere the seat is in India and has no application to foreign-seatedarbitration. It is, therefore, complete code in dealing with appointmentof arbitrators, commencement of arbitration, making of an award andchallenges to the aforesaid award as well as execution of such awards.On the other hand, Part II is not concerned with the arbitral proceedingsat all. It is concerned only with the enforcement of foreign award, asdefined, in India. Section 45 alone deals with referring the parties toarbitration in the circumstances mentioned therein. Barring this exception,in any case, Part II does not apply to arbitral proceedings oncecommenced in country outside India.

12. Even before the Arbitration Act of 1996, India, being one ofthe earliest signatories to the New York Convention, legislated inaccordance therewith and enacted the Foreign Awards Act in 1961.Under this Act, section 2, which is pari materia to section 44 of theArbitration Act, laid down:

“2. Definition.—In this Act, unless the context otherwise requires,“foreign award” means an award on differences between personsarising out of legal relationships, whether contractual or not,considered as commercial under the law in force in India, madeon or after the 11th day of October, 1960—

A(a)in pursuance of an agreement in writing for arbitration towhich the Convention set forth in the Schedule applies; and

(b)in one of such territories as the Central Government beingsatisfied that reciprocal provisions have been made, may,by notification in the official Gazette, declare to be territoriesBto which the said Convention applies.”

Under section 6 of the Foreign Awards Act, where the court issatisfied that the foreign award is enforceable, the court shall order theaward to be filed and shall proceed to pronounce judgment according tothe award. This provision has since been done away with by theCArbitration Act, 1996 as section 49 of the Arbitration Act expresslyprovides that the award shall be deemed to be decree of the court.Thereafter, section 7 of the Foreign Awards Act enumerates grounds onwhich such foreign award may be refused to be enforced. Obviously,under the earlier regime, there was no overlap between the ArbitrationAct, 1940, which dealt only with domestic awards, and the ForeignDAwards Act. This situation continues in the current Arbitration Act, PartI and Part II of which have been held to be mutually exclusive. Thus, inBALCO (supra), this Court held:

“37. In 1953 the International Chamber of Commerce promoteda new treaty to govern international commercial arbitration. TheEproposals of ICC were taken up by the United Nations Economicand Social Council. This in turn led to the adoption of theConvention on the Recognition and Enforcement of ForeignArbitral Awards at New York in 1958 (popularly known as “theNew York Convention”). The New York Convention is anFimprovement on the Geneva Convention of 1927. It provides fora much more simple and effective method of recognition andenforcement of foreign arbitral awards. It gives much wider effectto the validity of arbitration agreement. This Convention cameinto force on 7-6-1959. India became State signatory to thisConvention on 13-7-1960. The Foreign Awards (Recognition andGEnforcement) Act, 1961 was enacted to give effect to the NewYork Convention.”

“44. In the 1961 Act, there is no provision for challenging theforeign award on merits similar or identical to the provisions

contained in Sections 16 and 30 of the 1940 Act, which gavepower to remit the award to the arbitrators or umpire forreconsideration under Section 30 which provided the grounds forsetting aside an award. In other words, the 1961 Act dealt onlywith the enforcement of foreign awards. The Indian Law hasremained as such from 1961 onwards. There was no interminglingof matters covered under the 1940 Act, with the matters coveredby the 1961 Act.”

“88. … Section 2(7) of the Arbitration Act, 1996 reads thus:

“2. (7) An arbitral award made under this Part shall be consideredas domestic award.”

In our opinion, the aforesaid provision does not, in any manner,relax the territorial principle adopted by the Arbitration Act, 1996.It certainly does not introduce the concept of delocalisedarbitration into the Arbitration Act, 1996. It must be rememberedthat Part I of the Arbitration Act, 1996 applies not only to purelydomestic arbitrations i.e. where none of the parties are in anyway “foreign” but also to “international commercial arbitrations”covered within Section 2(1)(f) held in India. The term “domesticaward” can be used in two senses: one to distinguish it from“international award”, and the other to distinguish it from “foreignaward”. It must also be remembered that “foreign award” maywell be domestic award in the country in which it is rendered.As the whole of the Arbitration Act, 1996 is designed to givedifferent treatments to the awards made in India and those madeoutside India, the distinction is necessarily to be made betweenthe terms “domestic awards” and “foreign awards”. The schemeof 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 number of provisions contained in theArbitration Act, 1996 viz. the Preamble of the said Act, provisoand 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, whichincorporate 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 purely domestic context i.e.domestically rendered award in domestic arbitration or in theinternational context i.e. domestically rendered award in aninternational arbitration. Both the types of awards are liable to bechallenged under Section 34 and are enforceable under Section36 of the Arbitration Act, 1996. Therefore, it seems clear that theobject of Section 2(7) is to distinguish the domestic award coveredunder Part I of the Arbitration Act, 1996 from the “foreign award”covered under Part II of the aforesaid Act; and not to distinguishthe “domestic award” from an “international award” renderedin India. In other words, the provision highlights, if anything, aclear distinction between Part I and Part II as being applicable incompletely different fields and with no overlapping provisions.89. That Part I and Part II are exclusive of each other is evidentalso from the definitions section in Part I and Part II. The definitionscontained in Sections 2(1)(a) to (h) are limited to Part I. Theopening line which provides “In this Part, unless the contextotherwise requires….”, makes this perfectly clear. Similarly,Section 44 gives the definition of foreign award for the purposesof Part II (Enforcement of Certain Foreign Awards); Chapter I(New York Convention Awards). Further, Section 53 gives theinterpretation of foreign award for the purposes of Part II(Enforcement of Certain Foreign Awards); Chapter II (GenevaConvention Awards). From the aforesaid, the intention ofParliament is clear that there shall be no overlapping betweenPart I and Part II of the Arbitration Act, 1996. The two parts aremutually exclusive of each other. To accept the submissions madeby the learned counsel for the appellants would be to convert the“foreign award” which falls within Section 44, into domesticaward by virtue of the provisions contained under Section 2(7)even if the arbitration takes place outside India or is foreignseated arbitration, if the law governing the arbitration agreementis by choice of the parties stated to be the Arbitration Act, 1996.This, in our opinion, was not the intention of Parliament. Theterritoriality principle of the Arbitration Act, 1996, precludes PartI from being applicable to foreign seated arbitration, even if theagreement purports to provide that the arbitration proceedingswill be governed by the Arbitration Act, 1996.”

“120. We are unable to agree with the submission of the learnedSenior Counsel that there is any overlapping of the provisions inPart I and Part II; nor are the provisions in Part II supplementaryto Part I. Rather there is complete segregation between the twoparts.

121. Generally speaking, regulation of arbitration consists of foursteps:

(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 Iand Part II of the Arbitration Act, 1996. Part I of the ArbitrationAct, 1996 regulates arbitrations at all the four stages. Part II,however, regulates arbitration only in respect of commencementand recognition or enforcement of the award.”

“124. Having accepted the principle of territoriality, it is evidentthat the intention of Parliament was to segregate Part I and PartII. Therefore, any of the provisions contained in Part I cannot bemade applicable to foreign awards, as defined under Sections 44and 53 i.e. the New York Convention and the Geneva awards.This would be distortion of the scheme of the Act. It is, therefore,not possible to accept the submission of Mr Subramanium thatprovisions contained in Part II are supplementary to the provisioncontained in Part I. Parliament has clearly segregated the twoparts.”

13. This being the case, it is little difficult to accede to anyargument that would breach the wall between Parts I and II. Mr. Himani’sargument that the proviso to section 2(2) of the Arbitration Act is abridge which connects the two parts must, thus, be rejected. As matterof fact, section 2(2) specifically states that Part I applies only where theplace of arbitration is in India. It is settled law that proviso cannottravel beyond the main enacting provision – see Union of India v. DileepKumar Singh, (2015) 4 SCC 421 (at paragraph 20), DMRC v. Tarun

APal Singh, (2018) 14 SCC 161 (at paragraph 21), Kandla Export Corpn.v. OCI Corpn., (2018) 14 SCC 715 (at paragraph 13), and MavilayiService Co-operative Bank Ltd. v. Commissioner of Income Tax,Calicut, 2021 SCC OnLine SC 16 (at paragraph 41).

14. As matter of fact, the reason for the insertion of the provisoBto section 2(2) by the Arbitration and Conciliation (Amendment) Act,2015 was because the judgment in Bhatia International v. BulkTrading S.A., (2002) 4 SCC 105 [“Bhatia”] had muddied the watersby holding that section 9 would apply to arbitrations which take placeoutside India without any express provision to that effect. The judgmentin Bhatia (supra) has been expressly overruled five-Judge Bench inCBALCO (supra). Pursuant thereto, proviso has now been inserted tosection 2(2) which only makes it clear that where, in an arbitration whichtakes place outside India, assets of one of the parties are situated inIndia and interim orders are required qua such assets, includingpreservation thereof, the courts in India may pass such orders. It isDimportant to note that the expression “international commercialarbitration” is specifically spoken of in the context of place of arbitrationbeing outside India, the consequence of which is an arbitral award to bemade in such place, but which is enforced and recognised under theprovisions of Part II of the Arbitration Act. The context of this expressionis, therefore, different from the context of the definition of “internationalEcommercial arbitration” contained in Section 2(1)(f), which is in thecontext of such arbitration taking place in India, which only applies “unlessthe context otherwise requires”. The four sub-clauses contained in section2(1)(f) would make it clear that the definition of the expression“international commercial arbitration” contained therein is party-centricFin the sense that at least one of the parties to the arbitration agreementshould, inter alia, be person who is national of or habitually residentin any country other than India. On the other hand, when “internationalcommercial arbitration” is spoken of in the context of taking place outsideIndia, it is place-centric as is provided by section 44 of the Arbitration

Act. This expression, therefore, only means that it is an arbitration whichGtakes place between two parties in territory outside India, the NewYork Convention applying to such territory, thus making it an“international” commercial arbitration.Ingredients of Foreign Award sought to be enforced underPart IIH

15. Section 44 of the Arbitration Act is modelled on Articles I andII of the New York Convention. The relevant provisions of the NewYork Convention read as under:

“Article I

1. This Convention shall apply to the recognition and enforcementof arbitral awards made in the territory of State other than theState where the recognition and enforcement of such awards aresought, and arising out of differences between persons, whetherphysical or legal. It shall also apply to arbitral awards not consideredas domestic awards in the State where their recognition andenforcement are sought.”

“Article II

1. Each Contracting State shall recognise an agreement in writingunder which the parties undertake to submit to arbitration all orany differences which have arisen or which may arise betweenthem in respect of defined legal relationship, whether contractualor not, concerning subject-matter capable of settlement byarbitration.

2. The term “agreement in writing” shall include an arbitral clausein contract or an arbitration agreement, signed by the parties orcontained in an exchange of letters or telegrams.”

16. By way of contrast, section 53 of the Arbitration Act, whichdeals with awards under the Geneva Convention on the Execution ofForeign Arbitral Awards, 1927 [“Geneva Convention”], states:

“53. Interpretation.—In this Chapter “foreign award” meansan arbitral award on differences relating to matters considered ascommercial under the law in force in India made after the 28thday of July, 1924,—

(a)in pursuance of an agreement for arbitration to which theGProtocol set forth in the Second Schedule applies, and

(b)between persons of whom one is subject to the jurisdictionof some one of such powers as the Central Government,being satisfied that reciprocal provisions have been made,may, by notification in the Official Gazette, declare to be

parties to the Convention set forth in the Third Schedule,and of whom the other is subject to the jurisdiction of someother of the powers aforesaid, and

(c)in one of such territories as the Central Government, beingsatisfied that reciprocal provisions have been made, may,by like notification, declare to be territories to which thesaid Convention applies,

and for the purposes of this Chapter an award shall not be deemedto be final if any proceedings for the purpose of contesting thevalidity of the award are pending in the country in which it wasCmade.”

It will be seen that the requirement of section 53(b) is conspicuousby its absence in section 44 when it comes to an award to which theNew York Convention applies.

17. As matter of fact, before the New York Convention wasDmade final, several countries wanted to insert the provisions of section53(b), which reflected Article I of the Geneva Convention, in the NewYork Convention as well. Thus, China objected to the phrasing of ArticleI of the New York Convention, stating:

“China

The first part of article I, paragraph 2, provides: ‘Any ContractingState may, upon signing, ratifying or acceding to this Convention,declare that it will apply the Convention only to the recognitionand enforcement of arbitral awards made in the territory of anotherContracting State.’ It follows from this provision that any personFreceiving an arbitral award in Contracting State may requestrecognition and enforcement, and this right is not limited to thenationals of Contracting State. The Chinese Governmentconsiders this provision as too liberal, and is of the opinion that, onthe basis of the principle of international reciprocity, such rightshould be restricted in accordance with the spirit of article I of theG1927 Convention on the Execution of Foreign Arbitral Awards,which provides: ‘An arbitral award … shall be recognised asbinding and shall be enforced … provided that the said award hasbeen made in territory of one of the High Contracting Parties towhich the present Convention applies, and between persons who

are subject to the jurisdiction of one of the High ContractingParties.’”

Likewise, Mexico also objected, stating:

“The Mexican Government further considers that it would beadvisable to include in the draft Convention the stipulation containedin the Geneva Convention that the arbitral award must have beenmade in dispute between persons who are subject to thejurisdiction of one of the Contracting States. The MexicanGovernment takes this view because Mexican law regards arbitralawards as acts which in themselves are private, since they aremade pursuant to compromise concluded between private persons,and which become enforceable only when the logic of the awardis, in addition supported by the authority of judicial decision.”

Hungary followed suit, also stating:

“For this reason, and contrary to the statement contained in point23 of the Committee’s report, the point should be reconsideredwhether, in compliance with the provisions of the GenevaConvention of 1927, the validity of the Convention should berestricted to arbitral awards on differences between personscoming under the jurisdiction of one or the other of the ContractingStates, or whether at least the Contracting States should beaccorded the right under the Convention to apply the provisionsof the same only to arbitral awards of such nature. If the presentmeaning of the word ‘jurisdiction’ – as stated in the Committee’sreport - is rather vague and ambiguous, there is no reason why itshould not be defined more precisely.”

As did Norway:

“As far as the definition of the scope of the convention isconcerned, the Norwegian Government agrees with the SpecialCommittee (see paragraph 23 of the Report) that the requirementof the Geneva Convention of 1927 (article I, first paragraph), tothe effect that the arbitral award must have been made “betweenpersons who are subject to the jurisdiction of one of the HighContracting Parties”, is too vague and ambiguous. The scope ofthe present draft seems on the other hand to be unreasonablycomprehensive. As now formulated, the convention would applyeven if both the parties to the arbitral award are nationals of the

State where enforcement is sought as well as in cases wherenone of them is national of Contracting State.”

18. Professor Pieter Sanders, in an article “New York Conventionon the Recognition and Enforcement of Foreign Arbitral Awards”(Netherlands International Law Review, Volume 6, Issue 1, March 1959),outlined what he referred to as the strides made by the New YorkConvention when compared with the Geneva Convention, thus:

“The international business world, for whom these conventionsare made, strongly hopes that Government will soon ratify theNew York Convention or accede to it, as in their opinion theConvention constitutes an important step forward compared withthe Geneva Convention. Before briefly commenting upon theseparate articles of the Convention, I may try to give broadoutline of the most important differences between the GenevaConvention 1927 and the New York Convention 1958.”

“4. Article 1 has been the result of lengthy discussions in specialworking group as well as in the plenary sessions of the New Yorkarbitration conference. The first paragraph is the result of acompromise reached within the working group. The first sentenceof this paragraph is based upon territorial criterion:

The Convention shall apply to the recognition and enforcement ofarbitral awards made in the territory of state other than thestate where the recognition and enforcement of such awards aresought, and arising out of differences between persons, whetherphysical or legal.

The second sentence introduces the national principle:

It shall also apply to arbitral awards not considered as domesticawards in the state where their recognition and enforcement issought.

Let me illustrate this by an example. Germany regards an arbitralaward rendered in France under German procedural law as aGerman arbitral award and an arbitral award rendered in Germanyunder French procedural law as non-domestic, French award.Germany applies the criterion of the applicable procedural lawand therefore will also apply the Convention when enforcement

is sought in Germany of an award rendered in Germany underFrench procedural law.

The scope of the new Convention is wider than that of the GenevaConvention which applies to awards that have been “made in aterritory of one of the High Contracting Parties to which theConvention applies and between persons who are subject to thejurisdiction of one of the High Contracting Parties”. Here weonly find the territorial principle and in addition to this the restrictionthat the award must be made between persons, subject to thejurisdiction of the High Contracting Parties.”

19. Likewise, Gary B. Born, in his book “International CommercialArbitration” (Wolters Kluwer, 3[rd] Edn., 2021), has this to say:

“The Geneva Protocol was expressly limited to agreements toarbitrate between parties that were nationals of differentContracting States. This was the sole criterion for“internationality”: other agreements to arbitrate, even if theyinvolved classic cross-border international trade or investment,were not subject to the Protocol.

In contrast, as noted above, the text of Article II of the New YorkConvention does not expressly address the categories of arbitrationagreements which are subject to the Convention. Instead, theConvention’s text only addresses what arbitral awards are entitledto the treaty’s protections. As consequence, the definition ofthose arbitration agreements that are within the scope of the NewYork Convention must be ascertained by implication, either byreference to the Convention’s treatment of awards or otherwise.In these circumstances, there are unfortunately several possibleinterpretations that may be adopted. The analysis of thesepermutations can be frustratingly complex, but, properlyunderstood, ultimately produces simple, sensible result.”

20. Finally, the New York Convention, in Article I(3), referred toonly two conditions that can be made by State when it signs, ratifies, oraccedes to the New York Convention, as follows:

“3. When signing, ratifying or acceding to this Convention, ornotifying extension under article X hereof, any State may on thebasis of reciprocity declare that it will apply the Convention to therecognition and enforcement of awards made only in the territory

Aof another Contracting State. It may also declare that it will applythe Convention only to differences arising out of legal relationships,whether contractual or not, which are considered as commercialunder the national law of the State making such declaration.”

It is in pursuance of Article I of the New York Convention thatBsection 44 of the Arbitration Act has been enacted.

21. Under section 44 of the Arbitration Act, foreign award isdefined as meaning an arbitral award on differences between personsarising out of legal relationships considered as commercial under thelaw in force in India, in pursuance of an agreement in writing for arbitrationCto which the New York Convention applies, and in one of such territoriesas the Central Government, by notification, declares to be territories towhich the said Convention applies. Thus, what is necessary for an awardto be designated as foreign award under section 44 are four ingredients:

(i)the dispute must be considered to be commercial disputeDunder the law in force in India,

(ii)it must be made in pursuance of an agreement in writingfor arbitration,

(iii)it must be disputes that arise between “persons” (withoutregard to their nationality, residence, or domicile), andE

(iv)the arbitration must be conducted in country which is asignatory to the New York Convention.

Ingredient (i) is undoubtedly satisfied on the facts of this case.Ingredient (ii) is satisfied given clause 6 of the settlement agreement.Ingredients (iii) and (iv) are also satisfied on the facts of this case as theFdisputes are between two persons, i.e. two Indian companies, and thearbitration is conducted at the seat designated by the parties, i.e. Zurich,being in Switzerland, signatory to the New York Convention.

22. At this juncture, it is important to cite the UNCTADCommentary on International Commercial Arbitration, which states:G

“1.4.1 Foreign arbitration and international arbitration arenot the same

An arbitration that takes place in State is foreign arbitration inState B. It does not matter whether the arbitration is commercialor non-commercial or whether the parties are from the same

country, from different countries or that one or all are from StateA. Since even domestic arbitration in State is foreignarbitration in State B, the courts of State would be called uponto apply the New York Convention to enforcement of clausecalling for arbitration in State and to the enforcement of anyaward that would result.

Aiding foreign arbitration

In some legal systems the courts will not come to the aid of a“foreign” arbitration by way of aiding in the procurement ofevidence, granting interim orders of protection or the like. However,many modern arbitration laws provide that the courts will aidarbitrations taking place in foreign State.

1.4.3 Definition of an international arbitration

Model Law

In the Model Law an arbitration is international if any one of fourdifferent situations is present:

2) The place of arbitration, if determined in or pursuant to, thearbitration agreement, is situated outside the State in which theparties have their places of business.”

23. The ICCA’s Guide to the Interpretation of the 1958 New YorkConvention: Handbook for Judges, compiled by the International Councilfor Commercial Arbitration with the assistance of the Permanent Courtof Arbitration, in its comment on Article I(1) of the New York Convention,and particularly, the expression “awards made in the territory of Stateother than the State where the recognition and enforcement … aresought”, states as follows:

“III.1.1. … Any award made in State other than the State ofthe recognition or enforcement court falls within the scope of theConvention, i.e., is foreign award. Hence, the nationality, domicileor residence of the parties is without relevance to determinewhether an award is foreign. …

Where is an award made? The Convention does not answer thisquestion. The vast majority of Contracting States considers that

Aan award is made at the seat of the arbitration. The seat of thearbitration is chosen by the parties or alternatively, by the arbitralinstitution or the arbitral tribunal. It is legal, not physical,geographical concept. Hearings, deliberations and signature ofthe award and other parts of the arbitral process may take placeelsewhere.”B

24. However, Mr. Himani strongly relied upon the followingjudgments to buttress his submission that the expression “unless thecontext otherwise requires” used in section 44 would necessarily importthe definition of “international commercial arbitration” contained in PartI when the context requires this to be done, namely, when two IndianCparties are resolving their disputes against each other in territory outsideIndia:

(i) Vanguard Fire and General Insurance Co. Ltd. v. Fraserand Ross, (1960) 3 SCR 857

“The main basis of this contention is the definition of the wordD“insurer” in Section 2(9) of the Act. It is pointed out that thatdefinition begins with the words “insurer means” and is thereforeexhaustive. It may be accepted that generally the word “insurer”has been defined for the purposes of the Act to mean person orbody corporate etc. which is actually carrying on the business ofEinsurance i.e. the business of effecting contracts of insurance ofwhatever kind they might be. But Section 2 begins with the words“in this Act, unless there is anything repugnant in the subject orcontext” and then come the various definition clauses of which(9) is one. It is well settled that all statutory definitions orFabbreviations must be read subject to the qualification variouslyexpressed in the definition clauses which created them and it maybe that even where the definition is exhaustive inasmuch as theword defined is said to mean certain thing, it is possible for theword to have somewhat different meaning in different sectionsof the Act depending upon the subject or the context. That is whyGall definitions in statutes generally begin with the qualifying wordssimilar to the words used in the present case, namely, unless thereis anything repugnant in the subject or context. Therefore in findingout the meaning of the word “insurer” in various sections of theAct, the meaning to be ordinarily given to it is that given in thedefinition clause. But this is not inflexible and there may be sections

in the Act where the meaning may have to be departed from onaccount of the subject or context in which the word has beenused and that will be giving effect to the opening sentence in thedefinition section, namely, unless there is anything repugnant inthe subject or context. In view of this qualification, the court hasnot only to look at the words but also to look at the context, thecollocation and the object of such words relating to such matterand interpret the meaning intended to be conveyed by the use ofthe words under the circumstances. Therefore, though ordinarilythe word “insurer” as used in the Act would mean person orbody corporate actually carrying on the business of insurance itmay be that in certain sections the word may have somewhatdifferent meaning.”

(ii) Bennett Coleman & Co. (P) Ltd. v. Punya Priya DasGupta, (1969) 2 SCC 1

“6. … But assuming that there is such conflict as contended,we do not have to resolve that conflict for the purposes of theproblem before us. The definition of Section 2 of the present Actcommences with the words “In this Act unless the contextotherwise requires” and provides that the definitions of the variousexpressions will be those that are given there. Similar qualifyingexpressions are also to be found in the Industrial Disputes Act,1947, the Minimum Wages Act, 1948, the C.P. and Berar IndustrialDisputes Settlement Act, 1947 and certain other statutes dealingwith industrial questions. It is, therefore, clear that the definitionsof ‘a newspaper employee’ and ‘a working journalist’ have to beconstrued in the light of and subject to the context requiringotherwise. Section 5 of the Act, which confers the right to gratuityitself contemplates in clause (d) of sub-section (1) case ofpayment of gratuity to the nominee or the family of workingjournalist who dies while he is in the service of newspaperestablishment. Section 17(1) provides that where any amount isdue under the Act to newspaper employee from an employer,such an employee himself or person authorised by him or, incase of his death, any member of his family can apply to the StateGovernment or other specified authority for the recovery thereof.Similar provisions are also to be found in Section 33-C(1) of the

AIndustrial Disputes Act. Claims under that section include thosefor compensation in cases of retrenchment, transfer of anundertaking and closure under Chapter V-A of that Act, all ofwhich would necessarily be claims arising after termination ofservice and the claimant would obviously be one in all those caseswho would not be presently employed in the establishment of theBemployer against whom such claims are made. Likewise, the claimfor gratuity under Section 17, read with Section 5 of the Act,would itself be one which accrues after the termination ofemployment. These provisions, therefore, clearly indicate that itis not only newspaper employee presently employed in aCparticular newspaper establishment who can maintain anapplication for gratuity. The scheme of all these acts dealing withindustrial questions is to permit an ex-employee to avail of thebenefits of their provisions, the only requirement being that theclaim in dispute must be one which has arisen or accrued whilstthe claimant was in the employment of the person against whomDit is made. There can, therefore, be no doubt that the definitionsof “newspaper employee” and “working journalist” being subjectto context to the contrary, the benefit of Sections 5 and 17 isavailable to an ex-employee though he has ceased to be in theemployment of that particular newspaper establishment at the timeEof his application for gratuity. The contention that the respondentwas not entitled to maintain his application as he was not in theservice of the appellant company on the date of his claim beforethe Labour Court cannot be sustained.”

(iii) Allied Motors (P) Ltd. v. CIT, (1997) 3 SCC 472

“12. In the case of Goodyear India Ltd. v. State of Haryana[(1990) 2 SCC 71 : 1990 SCC (Tax) 223 : (1991) 188 ITR 402]this Court said that the rule of reasonable construction must beapplied while construing statute. Literal construction should beavoided if it defeats the manifest object and purpose of the Act.

13. Therefore, in the well-known words of Judge Learned Hand,one cannot make fortress out of the dictionary; and shouldremember that statutes have some purpose and object toaccomplish whose sympathetic and imaginative discovery is thesurest guide to their meaning. In the case of R.B. Jodha MalKuthiala v. CIT [(1971) 3 SCC 369 : (1971) 82 ITR 570] , this

Court said that one should apply the rule of reasonableinterpretation. proviso which is inserted to remedy unintendedconsequences and to make the provision workable, proviso whichsupplies an obvious omission in the section and is required to beread into the section to give the section reasonable interpretation,requires to be treated as retrospective in operation so that areasonable interpretation can be given to the section as whole.”

25. We have already seen that the context of section 44 is party-neutral, having reference to the place at which the award is made. Forthis reason, it is not possible to accede to the argument that the verybasis of section 44 should be altered when two Indian nationals havetheir disputes resolved in country outside India. On the other hand, thejudgment in S.K. Gupta v. K.P. Jain, (1979) 3 SCC 54 is apposite, andstates as follows:

“24. The noticeable feature of this definition is that it is an inclusivedefinition and, where in definition clause, the word “include” isused, it is so done in order to enlarge the meaning of the words orphrases occurring in the body of the statute and when it is soused, these words or phrases must be construed as comprehendingnot only such things which they signify according to their naturalimport, but also those things which the interpretation clausedeclares that they shall include (see Dilworth v. Commissionerof Stamps [(1899) AC 99, 105 : 79 LT 473]). Where in definitionsection of statute word is defined to mean certain thing,wherever that word is used in that statute, it shall mean what isstated in the definitions unless the context otherwise requires.But where the definition is an inclusive definition, the word notonly bears its ordinary, popular and natural sense whenever thatwould be applicable but it also bears its extended statutory meaning.At any rate, such expansive definition should be so construed asnot cutting down the enacting provisions of an Act unless thephrase is absolutely clear in having opposite effect (see Jobbinsv. Middlesex County Council [(1949) 1 KB 142 : (1948) 2 AllER 610] ). Where the definition of an expression in definitionclause is preceded by the words “unless the context otherwiserequires”, normally the definition given in the section should beapplied and given effect to but this normal rule may, however, bedeparted from if there be something in the context to show that

Athe definition should not be applied (see Khanna, J., in IndiraNehru Gandhi v. Raj Narain [(1975) Supp SCC 1, 97]). It wouldthus appear that ordinarily one has to adhere to the definition andif it is an expansive definition the same should be adhered to. Theframe of any definition more often than not is capable of beingmade flexible but the precision and certainty in law requires that itBshould not be made loose and kept tight as far as possible(see Kalya Singh v. Genda Lal [(1976) 1 SCC 304, 309 : (1975)3 SCR 783]).”

26. For this reason, it is not possible to accede to the argumentthat the expression “unless the context otherwise requires” can be heldCto undo the very basis of section 44 by converting it from seat-orientedprovision in countries that are signatories to the New York Conventionto person-oriented provision in which one of the parties to the arbitrationagreement has to be foreign national or habitually resident outsideIndia. In any case, the context of section 44 is very far removed fromDthe context of an international commercial arbitration in Part I which isdefined for the purposes of section 11, section 28, section 29A(1), section34(2A), and section 43I, all of which occur in Part I and deal witharbitrations which take place in India. Also, the argument of Mr. Himaniwould involve bodily importing the expression “international commercialarbitration” into section 44, which cannot be done because of the openingEwords of section 44, “In this Chapter” which is Chapter I of Part II, andthen applying the definition contained in section 2(1)(f) of the ArbitrationAct which, being restricted to Part I, must now be applied to Part II. Nocanon of interpretation would permit acceptance of such an argument.27. At this point, it is important to refer to the judgment of thisFCourt in Atlas (supra). In this case, even though the appellant, an Indiancompany, had entered into contract dated 03.06.1980 with companyincorporated in Hong Kong, the goods were to be supplied through anIndian company, namely, Kotak & Co., in Mumbai. Disputes arosebetween the two Indian companies – Atlas Exports Pvt. Ltd. and KotakG& Co. The contract dated 03.06.1980 incorporated an arbitration clauseas follows:

“2. The contract dated 3-6-1980 incorporated an arbitration clausewhich is extracted and reproduced hereunder:

“This contract is made under the terms and conditions effectiveHat date of Grain and Food Trade Association Ltd., London,

Contract 15 which is hereby made part of this contract …both buyers and sellers hereby acknowledge familiarity withthe text of the GAFTA contract and agree to be bound by itsterms and conditions.”

3. ”GAFTA” stands for Grain and Food Trade Association Ltd.,London. Clause 27 of Standard Contract 15 of GAFTA providesas under:

“27. Arbitration.—(a) Any dispute arising out of or under thiscontract shall be settled by arbitration in London in accordancewith the arbitration rules of Grain and Food Trade AssociationLimited, No. 125 such rules forming part of this contract andof which both parties hereto shall be deemed to be cognisant.

(b) Neither party hereto, nor any persons claiming under eitherof them, shall bring any such dispute until such dispute shallfirst have been heard and determined by the arbitrators, umpireor Board of Appeal, as the case may be, in accordance withthe arbitration rules and it is expressly agreed and declaredthat the obtaining of the award from the arbitration, umpire orBoard of Appeal, as the case may be, shall be conditionprecedent to the right of either party hereto or of any personclaiming under either of them to bring any action or other legalproceedings against the other of them in respect of any suchdispute.”

foreign award was delivered on 22.06.1987 as per the Rules ofGAFTA, London. Kotak & Co. moved an application under sections 5and 6 of the Foreign Awards Act before the High Court, seekingenforcement of the award by filing the same and praying forpronouncement of judgment according to the award. The award wasmade rule of the court, followed by decree, by learned SingleJudge of the Bombay High Court. Letters Patent Appeal preferred byAtlas Exports Pvt. Ltd. was dismissed. specific contention was raisedthat since both Atlas Exports Pvt. Ltd. and Kotak & Co. were Indianparties, the award could not be enforced, being contrary to sections 23and 28 of the Contract Act. This was repelled by this Court as follows:

“10. It was however contended by the learned counsel for theappellant that the award should have been held to be unenforceableinasmuch as the very contract between the parties relating to

arbitration was opposed to public policy under Section 23 readwith Section 28 of the Contract Act. It was submitted that Atlasand Kotak, the parties between whom the dispute arose, are bothIndian parties and the contract which had the effect of compellingthem to resort to arbitration by foreign arbitrators and therebyimpliedly excluding the remedy available to them under the ordinarylaw of India should be held to be opposed to public policy. UnderSection 23 of the Indian Contract Act the consideration or objectof an agreement is unlawful if it is opposed to public policy. Section28 and Exception 1 to it, (which only is relevant for the purpose ofthis case) are extracted and reproduced hereunder:

“28. Every agreement, by which any party thereto is restrictedabsolutely from enforcing his rights under or in respect of anycontract, by the usual legal proceedings in the ordinary tribunals,or which limits the time within which he may thus enforce hisrights, is void to that extent.

Exception 1.—This section shall not render illegal contract,by which two or more persons agree that any dispute whichmay arise between them in respect of any subject or class ofsubjects shall be referred to arbitration, and that only the amountawarded in such arbitration shall be recoverable in respect ofthe dispute so referred.”

11. The case at hand is clearly covered by Exception 1 to Section28. Right of the parties to have recourse to legal action is notexcluded by the agreement. The parties are only required to havetheir dispute/s adjudicated by having the same referred toarbitration. Merely because the arbitrators are situated in foreigncountry cannot by itself be enough to nullify the arbitrationagreement when the parties have with their eyes open willinglyentered into the agreement. Moreover, in the case at hand theparties have willingly initiated the arbitration proceedings on thedisputes having arisen between them. They have appointedarbitrators, participated in arbitration proceedings and sufferedan award. The plea raised before us was not raised either beforeor during the arbitration proceedings, nor before the learned SingleJudge of the High Court in the objections filed before him, nor inthe letters patent appeal filed before the Division Bench. Such

plea is not available to be raised by the appellant Atlas before thisCourt for the first time.”

28. It is clear that this Court categorically held that foreign awardcannot be refused to be enforced merely because it was made betweentwo Indian parties, under pari materia provisions of the Foreign AwardsAct. The Court also held that since this plea had never been taken in anyof the courts below, it was not available to the appellant to raise the saidplea before this Court for the first time.

29. It is clear that there can be more than one ratio decidendi toa judgment. Thus, In Jacobs v. London County Council, (1950) 1 AllER 737, the House of Lords, after referring to some earlier decisions,held, as follows:

“… However, this may be, there is, in my opinion, no justificationfor regarding as obiter dictum reason given by Judge for hisdecision, because he has given another reason also. If it were aproper test to ask whether the decision would have been the sameapart from the proposition alleged to be obiter, then case whichex facie decided two things would decide nothing. goodillustration will be found in London Jewellers Ltd. v. Attenborough, (1934) 2 KB 206 (CA). In that case thedetermination of one of the issues depended on how far the Courtof Appeal was bound by its previous decision in Folkes v. R.,(1923) 1 KB 282 (CA), [in which] the court had given two groundsfor its decision, the second of which [as stated by Greer, L.J.,in Attenborough case, (1934) 2 KB 206] was that: (KB p. 222):

‘… where man obtains possession with authority to sell, orto become the owner himself, and then sells, he cannot betreated as having obtained the goods by larceny by trick.’”

In Attenborough case, (1934) 2 KB 206 it was contended that,since there was another reason given for the decision in Folkescase, (1923) 1 KB 282, the second reason was obiter, but Greer,L.J., said in reference to the argument of counsel: (Attenboroughcase, KB p. 222)

“I cannot help feeling that if we were unhampered by authoritythere is much to be said for this proposition which commendeditself to Swift, J., and which commended itself to mein Folkes v. R., (1923) 1 KB 282, but that view is not open to

us in view of the decision of the Court of Appeal in Folkes v. R.,(1923) 1 KB 282. In that case two reasons were given by allthe members of the Court of Appeal for their decision and weare not entitled to pick out the first reason as the ratio decidendiand neglect the second, or to pick out the second reason as theratio decidendi and neglect the first; we must take both asforming the ground of the judgment.”

So, also, in Cheater v. Cater, (1918) 1 KB 247 (CA) Pickford,L.J., after citing passage from the judgment of Mellish, L.J.,in Erskine v. Adeane, (1873) LR 8 Ch App 756, said: (Cheatercase, KB p. 252)

“… That is distinct statement of the law and not dictum. Itis the second ground given by the Lord Justice for his judgment.If Judge states two grounds for his judgment and bases hisdecision upon both, neither of those grounds is dictum.”

(at page 741)

The said judgment has been followed in State of Gujarat v.Manoharsinhji Pradyumansinhji Jadeja, (2013) 2 SCC 300 (atparagraphs 78 and 79) and in Shayara Bano v. Union of India, (2017)9 SCC 1 (at footnote 65).

30. Obviously, there were two reasons for discarding the appellant’sargument in Atlas (supra) – the first reason was clearly on merits. Thesecond reason undoubtedly refused to entertain this plea as it had notbeen raised earlier. However, this was coupled with the fact that theparties participated in the arbitral proceedings and suffered an award,after which such plea was then taken. We are, therefore, unable toaccede to the contention of Mr. Himani that this case cannot be regardedas an authority for the proposition that sections 23 and 28 of the ContractAct are out of harm’s way when it comes to enforcing foreign awardunder the Foreign Awards Act, 1961, where both parties are Indiancompanies.

31. It is interesting to note that under U.S. law, an arbitrationagreement or award made between two U.S. citizens shall not fall underthe New York Convention unless such relationship involves propertieslocated abroad, envisages performance of contract, entered in theU.S., to take place abroad, or has some reasonable connection with one

or more foreign states. Thus, section 202 of the Federal Arbitration Act[Title 9, U.S. Code] states as follows:

“Section 202.Agreement or award falling under theConvention—An arbitration agreement or arbitral awardarising out of legal relationship, whether contractual or not,which is considered as commercial, including transaction,contract, or agreement described in section 2 of this title, fallsunder the Convention. An agreement or award arising out ofsuch relationship which is entirely between citizens of theUnited States shall be deemed not to fall under the Conventionunless that relationship involves property located abroad,envisages performance or enforcement abroad, or has someother reasonable relation with one or more foreign states. Forthe purpose of this section corporation is citizen of theUnited States if it is incorporated or has its principal place ofbusiness in the United States.”

32. It is important to note that no such caveat is entered whenIndia acceded to the New York Convention and enacted the ForeignAwards Act and the Arbitration Act, 1996. On the contrary, we haveseen as to how “persons” mentioned in section 44 has no reference tonationality, residence or domicile. This is another important pointer tothe fact that, unlike the U.S. Code, section 44 of the Arbitration Actdoes not enter any such caveat.

33. In Sasan I (supra), the dispute resolution clause contained inthe contract between two Indian companies was set out in paragraph 33of the judgment as follows:

“33. However, Article 12 deals with the governing law and adispute resolution mechanism. Section 12.1 and 12.2(a), whichare relevant, read as under:

“Section 12.1-Governing Law – This Agreement shall begoverned by, and construed and interpreted in accordance with,the laws of the United Kingdom without regard to its conflictsof law principles.

Section 12.2-Dispute Resolution

Arbitration

(a) Any and all claims, disputes, questions or controversiesinvolving Reliance on the one hand and NAC on the otherhand arising out of or in connection with this Agreement(collectively, ‘Disputes’) which cannot be finally resolved bysuch parties within 60(sixty) days of arising by amicablenegotiation shall be resolved by final and binding arbitration tobe administered by the International Chamber of Commerce(the ‘ICC’) in accordance with its commercial arbitration rulesthen in effect (the ‘Rules’). The place of arbitration shall beLondon, England. Each party shall appoint one (1) arbitratorand the two (2) arbitrators so appointed shall together selectand appoint third arbitrator. If either Reliance, on the onehand, or NAC, on the other hand, fail to appoint their respectivearbitrator within 30(thirty) days after receipt by respondent(s)of the demand for arbitration or if the two (2) party-appointedarbitrators are unable to appoint the chairperson of the arbitraltribunal within thirty (30) days of the appointment of the secondarbitrator, then the ICC shall appoint such arbitrator or thechairperson, as the case may be, in accordance with the listing,ranking and striking provisions of the Rules. Save and exceptthe provision under Section 9, the provisions of the Part 1 of(Indian) Arbitration and Conciliation Act, 1996, as amended(the ‘Arbitration Act’) shall not apply to the arbitration. Thearbitrators shall not award punitive, exemplary, multiple orconsequential damages. In connection with the arbitrationproceedings, the parties hereby agree to cooperate in goodfaith with each other and the arbitral tribunal and to use theirrespective best efforts to respond promptly to any reasonablediscovery demand made by such party and the arbitral tribunal.’

Sub-clause (d) of this Article deals with payments to be made bythe parties for the purpose of Arbitration.

‘(d) Each party shall bear its own arbitration expenses, andReliance on the one hand, and NAC, on the other hand, shallpay one-half of the ICC’s and the chairperson’s fees andexpenses, unless the arbitrators determine that it would beequitable if all or portion of the prevailing party’s expensesshould be borne by the other party. Unless the Award providesfor non-monetary remedies, any such Award shall be made

and shall be promptly payable in (i) US Dollars if payable toNAC or (ii) Rupees if paid to Reliance net of any tax or otherdeduction. The Award shall include interest from the date ofany breach or other violation of this Agreement and the rate ofinterest shall be specified by the arbitral tribunal and shall becalculated from the date of any such breach or other violationto the date when the Award is paid in full.’”

The Court then referred to BALCO (supra) and held:

“46. Finally, in paragraph 118 [Bharat Aluminium Co. v. KaiserAluminium Technical Services Inc., (2012) 9 SCC 552], the crucialpart heavily relied upon by Shri. V.K. Tankha, learned SeniorAdvocate, reference is made to section 28, and it is held as under:

‘118. It was submitted by the learned counsel for the appellantsthat Section 28 is another indication of the intention ofParliament that Part I of the Arbitration Act, 1996 was notconfined to arbitrations which take place in India. We are unableto accept the submissions made by the learned counsel for theparties. As the heading of Section 28 indicates, its only purposeis to identify the rules that would be applicable to ‘substanceof dispute’. In other words, it deals with the applicable conflictof law rules. This section makes distinction between purelydomestic arbitrations and international commercial arbitrations,with seat in India. Section 28(1)(a) makes it clear that in anarbitration 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 thecontract’. This is clearly to ensure that two or more Indianparties do not circumvent the substantive Indian law, byresorting to arbitrations. The provision would have anoverriding effect over any other contrary provision in suchcontract. On the other hand, where an arbitration under Part Iis an international commercial arbitration within Section 2(1)(f),the parties would be free to agree to any other ‘substantivelaw’ and if not so agreed, the ‘substantive law’ applicable wouldbe as determined by the Tribunal. The section merely showsthat the legislature has segregated the domestic and internationalarbitration. Therefore, to suit India, conflict of law rules havebeen suitably modified, where the arbitration is in India. This

will not apply where the seat is outside India. In that event,the conflict of law rules of the country in which thearbitration takes place would have to be applied. Therefore,in our opinion, the emphasis placed on the express ‘where theplace of arbitration is situated in India’, by the learned SeniorCounsel for the appellants, is not indicative of the fact that theintention of Parliament was to give an extra-territorial operationto Part I of the Arbitration Act, 1996.’

(emphasis in original)

47. Hon’ble Supreme Court holds that section 28 makes cleardistinction between purely domestic arbitration and internationalarbitration with seat in India, and it is indicated that section28(1)(a) makes it clear that in an arbitration under Part I to whichsection 2(1)(f) does not apply, there is no choice but for the Tribunalto decide the dispute by applying the Indian substantive lawapplicable to the Contract. It is this part of the judgment whichwas heavily relied upon by Shri. V.K. Tankha, learned SeniorAdvocate further refers to the next sentence which says that twoor more Indian parties cannot circumvent the substantive IndianLaw by resorting to arbitration. By placing much emphasis on thispart, learned Senior Advocate tried to indicate that the order ofthe learned District Judge is unsustainable.

48. However, if we further read the findings recorded by theSupreme Court in the same paragraph 118, as reproducedhereinabove, it is held by the Supreme Court that when the seat isoutside India, the conflict of law rule of the country in which thearbitration takes place would have to be applied, and thereafter itis held that the expression ‘whether the place of arbitration issituated in India’ does not indicate the intention of the Parliamentto give extra territorial operation to Part I, of the Arbitration Actof 1996. In paragraph 123 also, the matter has been considered inthe backdrop of the provisions contemplated under section 28,this also makes us to come to the inevitable conclusion that theprovisions of Part I will not apply where the seat of arbitration isoutside India.49. On consideration of the law laid down in the case of TDMInfrastructure (supra), we find, that the proceeding before the

Hon’ble Supreme Court was with regard to appointing an arbitratorunder section 11(6) and after taking note of the definition ofInternational Commercial Arbitration as provided in section 2(1)(f),the procedure for appointment of arbitrator and the provision ofsection 28, it was held that Part I of the Act of 1996 deals withdomestic arbitration and Part II deals with ‘foreign award’, andby specifically taking note of the provisions of section 28, has heldthat companies incorporated in India and when both the partieshave Indian nationality, then such arbitration cannot be said to bean international commercial arbitration. However, after havingsaid so, in paragraph 23 reference is made to section 28, theintention of the legislature, to hold that two Indian nationals shouldnot be permitted to derogate Indian Law.

50. Finally, in para 23 the following observations are made by theSupreme Court in the aforesaid case:

‘23. Section 28 of the 1996 Act is imperative in character inview of Section 2(6) thereof, which excluded the same fromthose provisions which parties derogate from (if so providedby the Act). The intention of the legislature appears to beclear that Indian nationals should not be permitted toderogate from Indian Law. This is part of the public policyof the country.

36. It is, however, made clear that any findings/observationsmade hereinbefore were only for the purpose of determiningthe jurisdiction of this Court as envisaged under Section 11 ofthe 1996 Act and not for any other purpose.’

(emphasis in original)

51. If we analyse this judgment, we find, that apart from beingone rendered in proceeding held under section 11(6), is basedon the consideration made with reference to section 28(1), as isevident from paragraph 23 relied upon by Shri. V.K. Tankha andthereafter in paragraph 36, caution is indicated with regard toapplicability of this judgment. Whereas in the case of AtlasExports (supra), we find that in Atlas Exports, in paragraphs 10and 11, the following principles have been laid down:-

‘10. It was however contended by the learned counsel for theappellant that the award should have been held to be

unenforceable in as much as the very contract betweenthe parties relating to arbitration was opposed to publicpolicy under Section 23 read with Section 28 of theContract Act. It was submitted that Atlas and Kotak, theparties between whom the dispute arose, are both Indianparties and the contract which had the effect of compellingthem to resort to arbitration by foreign arbitrators andthereby impliedly excluding the remedy available to themunder the ordinary law of India should be held to beopposed to public policy. Under section 23 of the IndianContract Act the consideration or object or an agreement isunlawful if it is opposed to public policy. Section 28 and Exception1 to it, (which only is relevant for the purpose of this case) areextracted and reproduced hereunder:

‘28. Every agreement, by which any party thereto is restrictedabsolutely from enforcing his rights under or in respect of anycontract, by the usual legal proceedings in the ordinary tribunals,or which limits the time within which he may thus enforce hisrights, is void to that extent.

Exception 1 - This section shall not render illegal contract,by which two or more persons agree that any dispute whichmay arise between them in respect of any subject or class ofsubjects shall be referred to arbitration, and that only theamount awarded in such arbitration shall be recoverable inrespect of the dispute so referred.’

11. The case at hand is clearly covered by Exception 1 to Section28. Right of the parties to have recourse to legal action is notexcluded by the agreement. The parties are only required to havetheir dispute/s adjudicated by having the same referred toarbitration. Merely because the arbitrators are situated in aforeign country cannot by itself be enough to nullify thearbitration agreement when the parties have with their eyesopen willingly entered into the agreement. Moreover, in thecase at hand the parties have willing initiated the arbitrationproceedings on the disputes having arisen between them. Theyhave appointed arbitrators, participated in arbitration proceedingsand suffered an award. The plea raised before us was not raisedeither before or during the arbitration proceedings, nor before the

learned Single Judge of the High Court in the objections filed beforehim, nor in the letters patent appeal filed before the Division Bench.Such plea is not available to be raised by the appellant Atlasbefore this Court for the first time.’

(emphasis in original)

52. In this case i.e. Atlas Exports (supra), Sections 23 and 28 ofthe Contract Act are considered and it is held that when disputearises where both the parties are Indian, and if the contract hasthe effect of compelling them to resort to arbitration by foreignarbitrators and thereby impliedly excluding the remedy availableto them under the ordinary law of India, the same is not opposedto public policy. Section 28 exception (1) of the Contract Act istaken note of and it is held that merely because the arbitrators aresituated in foreign country that by itself cannot be enough tonullify the arbitration agreement, when the parties have with theireyes open, willingly entered into an agreement. If this observationmade by the Supreme Court is taken note of, we find that merelybecause two Indian companies have entered into an arbitrationagreement to be held in foreign country by agreed arbitrators,that by itself is not enough to nullify the arbitration agreement.

53. Shri. V.K. Tankha, learned Senior Advocate, tried to indicatethat Atlas Exports (supra) case was rendered in proceedingheld under the Arbitration Act, 1940 which is entirely differentfrom the Act of 1996 and, therefore, the said judgment will notapply in the present case. Instead, the judgment in the case of TDMInfrastructure (supra) would be applicable.

54. We cannot accept the aforesaid proposition. Shri AnirudhKrishnan, learned counsel, had taken us through the provisions ofboth the Act of 1940 and the Act of 1996, and thereafter he hadreferred to the judgment of the Supreme Court in the caseof Fuerst Day Lawson Limited (supra), where after detailedcomparison of various sections of both the Acts, from paragraphs65 onwards, Hon’ble Supreme Court discussed the provisions ofboth Acts, and finally has observed that there is not much of adifference between them. If the aforesaid judgment in the caseof Fuerst Day Lawson Limited (supra) is considered, the sameholds that both, the Act of 1980 [sic 1940] and 1996 are identicaland the Hon’ble Court has also indicated the similarity in both the

Acts. That being so, we see no reason as to why the principle laiddown of Atlas Exports (supra), which is by Larger Bench i.e..Division Bench, should not be applied particularly in the light ofthe law of precedent as laid down in the case of A.R.Antulay (supra). The contention of Shri. V.K. Tankha, learnedSenior Advocate, that the learned District Judge relied upon thejudgment in the case of Atlas Exports (supra) and refused to relyupon the case of TDM Infrastructure (supra) only because it isby Single Bench is not convincing or acceptable, as the DivisionBench Judgment in the case of Atlas Exports (supra) is bindingprecedent and once it is held in the aforesaid case that two Indiancompanies can agree to arbitrate in foreign country and thesame is not hit by public policy, we see no error in the order passedby the learned District Judge.

55. That apart, we also find that in the case of TDMInfrastructure (supra), note of caution is indicated in paragraph36, which was added by corrigendum subsequent topronouncement of judgment, this clearly indicates the principlelaid down by the Supreme Court was only for determining thejurisdiction under section 11 and nothing more. We need not gointo the questions any further now, as we find that the judgment inthe case of Atlas Exports (supra) is binding precedent.

56. Various other contentions were also advanced by Shri. AnirudhKrishnan, learned counsel, to say that the judgment in the caseof TDM Infrastructure (supra) is not by Court and, therefore,the provision of Article 141 of the Constitution will not apply. Oncewe have held that the principle of law laid down by the SupremeFCourt in the case of Atlas Exports (supra) is binding on us and isapplicable to the present dispute, we need not go into all thesequestions.

57. On going through the scheme of the Arbitration and ConciliationAct, 1996, we find that based on the seat of arbitration so also thenationality of parties, an arbitration is classified to be an‘International Arbitration’, and the governing law is also determinedon the basis of the seat of arbitration. Therefore, it is clear thatbased on the seat of arbitration, the question of permitting twoIndian companies/parties to arbitrate out of India is permissible.In the case of Atlas Exports (supra) itself, the principle has been

settled that two Indians can agree to have seat of arbitrationoutside India. Now, if two Indian Companies agree to have theirseat of arbitration in foreign country, the question would be as towhether the provisions of Part I or Part II would apply. Section44, of the Act of 1996, contemplates foreign award to be onepertaining to difference between persons arising out of legalrelationship, whether contractual or not, which is in pursuance toan agreement in writing for arbitration, to which the conventionset forth in the first schedule applies.58. In the First Schedule to the Act of 1996, convention on therecognition and enforcement of foreign award popularly knownas New York Convention has been laid down and admittedly inthis case the parties have agreed to have an arbitration with itsseat outside India i.e.. London. If that be the position then theprovisions of section 45 would be attracted until and unless it isestablished that the agreement is null and void, inoperative orincapable of being performed. If we analyse the scheme of theArbitration and Conciliation Act, 1996, we find that there is adistinction between ‘International Commercial Arbitration’ and a‘Foreign Award’. It is the case of the appellant that in disputebetween two Indian Parties, which is domestic arbitration, PartII and Section 45 of the Act of 1996 will not apply. However,when we consider the distinction between ‘InternationalCommercial Arbitration’ and ‘Foreign Award’, we find that thereis difference between an International Commercial Arbitrationand an Arbitration which is not an International CommercialArbitration. The same is based on the nationality of the partiesand this distinction is only relevant for the purpose of followingthe appointment procedure as contemplated under section 11. Asfar as nationality of the parties are concerned, the same has noapplicability for considering the applicability of Part II, of the Actof 1996. Applicability of Part II is determined solely based onwhat is the seat of arbitration, whether it is in country which issignatory to the New York Convention. If this requirement isfulfilled, Part II will apply and in the present case as this requirementis fulfilled, we have no hesitation in holding that the dispute inquestion is covered by Part II of the Act of 1996.”

A“72. Finally, we may observe that once it is found by us that partiesby mutual agreement have decided to resolve their dispute byarbitration and when they, on their own, chose to have the seat ofarbitration in foreign country, then in view of the provisions ofSection 2(2) of the Act of 1996, Part I of the Act, will not apply ina case where the place of arbitration is not India and if Part IBdoes not apply and if the agreement in question fulfils therequirement of Section 44 then Part II will apply and when Part IIapplies and it is found that agreement is not null or void orinoperative, the bar created under Section 45 would come intoplay and if bar created under Section 45 comes into play then it isCa case where the Court below had no option but to refer theparties for arbitration as the bar under Section 45 would also applyand the suit itself was not maintainable.”

This statement of the law has our approval. It may only bementioned that the judgment in Fuerst Day Lawson Ltd. v. JindalDExports Ltd., (2011) 8 SCC 333 [“Fuerst Day Lawson”], referred tothe provisions of the Foreign Awards Act, 1961 and Part II of theArbitration Act of 1996 and not the Arbitration Act, 1940, as has beenincorrectly held in paragraphs 53 and 54 of the aforesaid judgment. Inaddition, it may only be mentioned that the judgment of this Court by alearned Single Judge, under section 11 of the Arbitration Act, in TDME(supra) cannot, in any case, be regarded as binding precedent, havingbeen delivered by Single Judge appointing an arbitrator under section11 – see State of West Bengal v. Associated Contractors, (2015) 1SCC 32 (at paragraph 17).

34. The Bombay High Court has referred to and relied upon TDMF(supra) to arrive at the opposite conclusion of Sasan I (supra). Thus, inSeven Islands Shipping Ltd. v. Sah Petroleums Ltd., (2012) 5 MahLJ 822, one of us (Gavai, J.) sitting as Single Judge of the Bombay HighCourt, after placing reliance on TDM (supra), held:

“13. Mandate of section 45 to refer dispute to the Arbitrator isGalso on condition that the said agreement has to be legalagreement. When the Apex Court, in unequivocal terms has heldthat when both the Companies are incorporated in India anagreement cannot be termed as an “International ArbitrationAgreement”, I am of the view that since both the plaintiff and theHdefendants are companies incorporated in India even for the sake

of argument, there is an arbitration agreement, it cannot be an“International Arbitration Agreement” and as such not valid inlaw. However, I may clarify that I have not gone through thequestion whether in fact there is an arbitration agreement betweenthe parties or not.”

35. Likewise, another learned Single Judge of the Bombay HighCourt, in M/s. Addhar Mercantile Pvt. Ltd. v. Shree JagadambaAgrico Exports Pvt. Ltd., Arbitration Application No. 197 of 2014(decided on 12.06.2015), after referring to TDM (supra), then held:

“8. It is not in dispute that both parties are from India. perusalof clause 23 clearly indicates that intention of both parties is clearthat the arbitration shall be either in India or in Singapore. If theseat of the arbitration would have be at Singapore, certainly Englishlaw will have to be applied. Supreme Court in case of TDMInfrastructure Private Limited (supra) has held that the intentionof the legislature would be clear that Indian nationals should notbe permitted to derogate from Indian law. This is part of the publicpolicy of the country.

9. Insofar as submission of the learned counsel for the respondentthat if such provision is interpreted in the manner in which it iscanvassed by the learned counsel for the applicant, it would be inviolation of section 28(1)(a) is concerned, since I am of the viewthat the arbitration has to be conducted in India, under section28(1)(a), the arbitral tribunal will have to decide the disputes inaccordance with the substantive law for the time being in force inIndia. In my view the said agreement which provides for arbitrationin India thus does not violate section 28(1)(a) as canvassed by thelearned counsel for the respondent.”

36. Both these decisions rely on the judgment of this Court inTDM (supra) and have not appreciated the law in its correct perspectiveand, therefore, stand overruled. On the other hand, learned SingleJudge of the Delhi High Court in GMR Energy Limited v. DoosanPower Systems India, CS (COMM) 447/2017 (decided on 14.11.2017),considered the same question and followed the judgment of the MadhyaPradesh High Court in Sasan I (supra) – see paragraphs 29, 30 and 31.It distinguished the judgment in TDM (supra) correctly, as follows:

A“33. However, in para-36 of TDM Infrastructure (supra) SupremeCourt clarified that any findings/observations made hereinabovewere only for the purpose of determining the jurisdiction of theCourt as envisaged under Section 11 of the 1996 Act and not forany other purpose and is also evident from the conclusions notedin para 20 and 22 of the report. Thus GMR Energy cannot relyBupon the decision in TDM Infrastructure (supra) to contend thatin the present case Part-I of the Arbitration Act would apply andnot Part-II.”

The learned Single Judge of the Delhi High Court then relied uponthis Court’s judgment in Atlas (supra) in paragraph 41. In paragraph 43,Cthe learned Single Judge then referred to the table that is set out in

Fuerst Day Lawson (supra) as follows:

“43. Contention of learned counsel for GMR Energy that thejudgment in Atlas (supra) was given prior to Arbitration andDConciliation Act, 1996, and therefore not applicable to the presentcase, also deserves to be rejected in view of the decision of theSupreme Court reported as (2011) 8 SCC 333 Fuerst DayLawson v. Jindal Exports Ltd. wherein comparing the preamendment and post amendment Arbitration Act it was observedthat the new Act is more favourable to international arbitrationEthan its previous incarnation. The report comparing the provisionsof the two Acts noted:

64. The provisions of Chapter I of Part II of the 1996 Actalong with the provisions of the Foreign Awards (Recognitionand Enforcement) Act, 1961, insofar as relevant for the presentFare placed below in tabular form:

ABCDEFGH

65. comparison of the two sets of provisions would showthat Section 44, the definition clause in the 1996 Act is averbatim reproduction of Section 2 of the previous Act (butfor the words “chapter” in place of “Act”, “First Schedule”in place of “Schedule” and the addition of the word “arbitral”before the word “award” in Section 44). Section 45corresponds to Section 3 of the previous Act.

66. Section 46 is verbatim reproduction of Section 4(2)except for the substitution of the word “chapter” for “Act”.Section 47 is almost reproduction of Section 8 except forthe addition of the words “before the court” in sub-section(1) and an Explanation as to what is meant by “court” in thatsection.

E67. Section 48 corresponds to Section 7; Section 49 to Section6(1) and Section 50 to Section 6(2).

68. Apart from the fact that the provisions are arranged in afar more orderly manner, it is to be noticed that the provisionsof the 1996 Act are clearly aimed at facilitating and expeditingFthe enforcement of the New York Convention Awards.

69. Section 3 of the 1961 Act dealing with stay ofproceedings in respect of matters to be referred to arbitrationwas confined in its application to “legal proceedings in anycourt” and the court had wider discretion not to stay theGproceedings before it. The corresponding provision in Section45 of the present Act has wider application and it covers anaction before any judicial authority. Further, under Section45 the judicial authority has narrower discretion to refuseto refer the parties to arbitration.”

The learned Single Judge thereafter arrived at the conclusion, onthe facts of that case, that the arbitral award delivered in Singaporebetween the two Indian parties would be enforceable under PartII, and not Part I, of the Arbitration Act.

37. Likewise, learned Single Judge of the Delhi High Court, inDholi Spintex v. Louis Dreyfus, CS (COMM) 286/2020 (decided on24.11.2020), had occasion to consider the same point of law, and afterreferring to Sasan I (supra), correctly held:

“43. Learned counsel for the plaintiff has heavily relied uponSection 23 of the Contract Act which provides for considerationsand object which are lawful and which are not, thus emphasizingthat two Indian parties contracting out of Indian law would defeatthe provisions of the law and would be opposed to public policy.Learned counsel for the plaintiff seeks either declaration of Clause6 of the agreement between the parties as null and void or byapplying the Blue Pencil Test give meaningful interpretation toclause-6 whereby the parties can then subject themselves to thejurisdiction of Indian Cotton Association. Three Judge Bench ofthe Hon’ble Supreme Court in (2017) 2 SCC 228 CentrotradeMinerals and Metal Inc. v. Hindustan Copper Ltd. emphasizedthe principle of party autonomy in arbitration and held that thesame is virtually the backbone which permit parties to adopt theforeign law as the proper law of arbitration. In (2005) 5 SCC 465Technip SA v. SMS Holding Pvt. Limited, three Judge Benchof the Hon’ble Supreme Court dealing with the conflicts of lawheld that disregard of applicability of foreign law must relate tobasic principles of morality and justice and only when the foreignlaw amounts to flagrant or gross breach of such principle thatpower should be exercised to hold inapplicability of foreign lawthat too, exceptionally and with great circumspection. It was heldthat in sense all statutes enacted by Parliament or the Statescan be said to be part of Indian public policy, but to discard aforeign law only because it is contrary to an Indian statute woulddefeat the basis of private international law to which Indiaundisputedly subscribes.

47. Therefore, an arbitration agreement between the parties beingan agreement independent of the substantive contract and the

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602SUPREME COURT REPORTS

Aparties can choose different governing law for the arbitration,two Indian parties can choose foreign law as the law governingarbitration. Further there being clearly foreign element to theagreement between the parties, the two Indian parties, that is theplaintiff and defendant could have agreed to an internationalcommercial arbitration governed by the laws of England. HenceBClause 6 of the contract dated 30[th] May, 2019 between the partiesis not null or void.”The argument of the appellant based on sections 23 and 28of the Contract Act

C38. Mr. Himani has argued that even if Atlas (supra) is to betaken to be binding precedent, it contains no discussion on how section23 of the Contract Act is not infracted and does not, in any case, dealwith his argument based on section 28(1)(a) and section 34(2A) of theArbitration Act. Sections 23 and 28 of the Contract Act read as follows:

D“23. What considerations and objects are lawful, and whatnot.—The consideration or object of an agreement is lawful,unless—

it is forbidden by law; or

is of such nature that, if permitted, it would defeat theEprovisions of any law; or

is fraudulent; or

involves or implies injury to the person or property of another;or the Court regards it as immoral, or opposed to public policy.

FIn each of these cases, the consideration or object of an agreementis said to be unlawful. Every agreement of which the object orconsideration is unlawful, is void.”

“28. Agreements in restraint of legal proceedings void.—Every agreement,—

G(a)by which any party thereto is restricted absolutely fromenforcing his rights under or in respect of any contract, bythe usual legal proceedings in the ordinary tribunals, or whichlimits the time within which he may thus enforce his rights,or

(b)which extinguishes the rights of any party thereto, ordischarges any party thereto from any liability, under or inrespect of any contract on the expiry of specified periodso as to restrict any party from enforcing his rights, is voidto that extent.

Exception 1.—Saving of contract to refer to arbitrationdispute that may arise.—This section shall not render illegal acontract, by which two or more persons agree that any disputewhich may arise between them in respect of any subject or classof subjects shall be referred to arbitration, and that only the amountawarded in such arbitration shall be recoverable in respect of thedispute so referred.”

39. The elusive expression “public policy” appearing in section 23of the Contract Act is relative concept capable of modification in tunewith the strides made by mankind in science and law. An important earlyjudgment of the Court of Appeal, namely, Maxim Nordenfelt Gunsand Ammunition Company v. Nordenfelt, [1893] 1 Ch. 630[“Nordenfelt”], puts it thus:

“Rules which rest upon the foundation of public policy, not beingrules which belong to the fixed or customary law, are capable, onproper occasion, of expansion or modification. Circumstances maychange and make commercial practice expedient which formerlywas mischievous to commerce. But it is one thing to say that anoccasion has arisen upon which to adhere to the letter of the rulewould be to neglect its spirit, and another to deny that the rule stillexists. The dicta which Lord Justice Fry cites from Hitchcockv. Coker [142. 6 A. & E. 348], from Tallis v. Tallis [1 E. & B.391], and from Mallan v. May [11 M. & W. 653], are all dicta incases of partial restraint, where the reasonableness of theparticular contract necessarily came under consideration. Thenecessary protection of the individual may in such cases be theproper measure of the reasonableness of the bargain. When LordJustice Fry passes on [14 Ch. D. 366] to examine the question ofthe existence of the common law rule, he assumes, as it appearsto me, without sufficient justification, that complete protection ofthe individual is the only reason which ought to lie at the root of

Athe doctrine. But the reasonableness of the legal principle whichforbids general restraint altogether is not the same thing as thereasonableness (as between the parties) of the bargain in anyparticular case. With regard to the argument that the rule, if itexisted, would be an artificial one, and would therefore admit ofno exceptions, the judgments of the Judges and of the House ofBLords in the case of Egerton v. Earl Brownlow [4 H. L. C. 1],illustrate, I submit, the distinction between fixed rule of customarylaw and rule based on reason and policy. The latter may admitof exceptions, although the former may not.”

(at pages 661-662)

“The result seems to me to be as follows: General restraints, or, inother words, restraints wholly unlimited in area, are not, as rule,permitted by the law, although the rule admits of exceptions. PartialDrestraints, or, in other words, restraints which involve only limitof places at which, of persons with whom, or of modes in which,the trade is to be carried on, are valid when made for goodconsideration, and where they do not extend further than isnecessary for the reasonable protection of the covenantee. limitin time does not, by itself, convert general restraint into partialEone. “That which the lawdoes not allow is not to be toleratedbecause it is to last for short time only.” In considering, however,the reasonableness of partial restraint, the time for which it is tobe imposed may be material element to consider.”

(at pages 662-663)

F40. The classic judgment of this Court in Gherulal Parakh v.Mahadeodas Maiya, 1959 Supp (2) SCR 406 [“Gherulal”] states asfollows:

“… Cheshire and Fifoot in their book on Law of Contract 3[rd]Edn., observe at p. 280 thus:G

“The public interests which it is designed to protect are socomprehensive and heterogeneous, and opinions as to what isinjurious must of necessity vary so greatly with the social andmoral convictions, and at times even with the political views,of different judges, that it forms treacherous and unstableH

ground for legal decision. … These questions have agitatedthe Courts in the past, but the present state of the law wouldappear to be reasonably clear. Two observations may be madewith some degree of assurance.

First, although the rules already established by precedent must bemoulded to fit the new conditions of changing world, it is nolonger legitimate for the Courts to invent new head of publicpolicy. judge is not free to speculate upon what, in his opinion, isfor the good of the community. He must be content to apply, eitherdirectly or by way of analogy, the principles laid down in previousdecisions. He must expound, not expand, this particular branch ofthe law.

Secondly, even though the contract is one which prima facie fallsunder one of the recognized heads of public policy, it will not beheld illegal unless its harmful qualities are indisputable. The doctrine,as Lord ATKIN remarked in leading case, “should only be invokedin clear cases in which the harm to the public is substantiallyincontestable, and does not depend upon the idiosyncraticinferences of few judicial minds … In popular language … thecontract should be given the benefit of the doubt.”

Anson in his Law of Contract states the same rule thus, at p. 216:

“Jessel, M.R., in 1875, stated principle which is still valid forthe Courts, when he said: ‘You have this paramount publicpolicy to consider, that you are not lightly to interfere with thefreedom of contract ‘; and it is in reconciling freedom ofcontract with other public interests which are regarded as ofnot less importance that the difficulty in these cases arises ….

We may say, however, that the policy of the law has, on certainsubjects, been worked into set of tolerably definite rules.The application of these to particular instances necessarily varieswith the conditions of the times and the progressivedevelopment of public opinion and morality, but, as Lord Wrighthas said, ‘public policy, like any other branch of the CommonLaw, ought to be, and I think is, governed by the judicial use ofprecedents. If it is said that rules of public policy have to bemoulded to suit new conditions of changing world, that is

[2021] 4 S.C.R.

true; but the same is true of the principles of the CommonLaw generally.”

In Halsbury’s Laws of England, 3rd Edn., Vol. 8, the doctrine isstated at p. 130 thus:

“Any agreement which tends to be injurious to the public or againstthe public good is void as being contrary to public policy…. Itseems, however, that this branch of the law will not be extended.The determination of what is contrary to the so-called policy ofthe law necessarily varies from time to time. Many transactionsare upheld now which in former generation would have beenavoided as contrary to the supposed policy of the law. The ruleremains, but its application varies with the principles which forthe time being guide public opinion.” …”

(at pages 432-434)

“… The doctrine of public policy may be summarized thus: Publicpolicy or the policy of the law is an illusive (sic elusive) concept;it has been described as “untrustworthy guide”, “variable quality”,“uncertain one”, “unruly horse”, etc; the primary duty of Courtof Law is to enforce promise which the parties have made andto uphold the sanctity of contracts which form the basis of society,but in certain cases, the Court may relieve them of their duty on arule founded on what is called the public policy; for want of betterwords Lord Atkin describes that something done contrary to publicpolicy is harmful thing, but the doctrine is extended not only toharmful cases but also to harmful tendencies; this doctrine of publicpolicy is only branch of common law, and, just like any otherbranch of common law, it is governed by precedents; the principleshave been crystallized under different heads and though it ispermissible for Courts to expound and apply them to differentsituations, it should only be invoked in clear and incontestable casesof harm to the public; though the heads are not closed and thoughtheoretically it may be permissible to evolve new head underexceptional circumstances of changing world, it is advisable inthe interest of stability of society not to make any attempt todiscover new heads in these days.”

(at pages 439-440)

41. This judgment has been referred to with approval in severalsubsequent decisions. Thus, in Murlidhar Aggarwal v. State of U.P.,(1974) 2 SCC 472, this Court held:

“30. ”Public Policy” has been defined by Winfield as “a principleof judicial legislation or interpretation founded on the current needsof the community” [Percy H. Winfield, Public Policy in EnglishCommon Law, 42 Harvard Law Rev. 76]. Now, this would showthat the interests of the whole public must be taken into account;but it leads in practice to the paradox that in many cases whatseems to be in contemplation is the interest of one section only ofthe public, and small section at that. The explanation of theparadox is that the courts must certainly weigh the interests ofthe whole community as well as the interests of considerablesection of it, such as tenants, for instance, as class as in thiscase. If the decision is in their favour, it means no more than thatthere is nothing in their conduct which is prejudicial to the nationas whole. Nor is the benefit of the whole community always amere tacit consideration. The courts may have to strike balancein express terms between community interests and sectionalinterests. So, here we are concerned with the general freedom ofcontract which everyone possesses as against the principle thatthis freedom shall not be used to subject class, to the harassmentof suits without valid or reasonable grounds. Though there isconsiderable support in judicial dicta for the view that courts cannotcreate no (sic) new heads of public policy [GherulalParekh v. Mahadeodas Maiya, 1959 Supp (2) SCR 406, 440] ,there is also no lack of judicial authority for the view that thecategories of heads of public policy are not closed and that thereremains broad field within which courts can apply variablenotion of policy as principle of judicial legislation or interpretationfounded on the current needs of the community [Dennis Lloyd,Public Policy (1953) pp. 112 & 113.].”

42. In Union of India v. Gopal Chandra Misra, (1978) 2 SCC301, this Court held:

“38. It must be remembered that the doctrine of public policy isonly branch of the common law, and its principles have beencrystallised and its scope well delineated by judicial precedents. Itis sometimes described as “a very unruly horse”. Public policy, as

ABurroughs, J. put it in Fauntleroy case [AmicableSociety v. Boeland, (1830) 4 Bligh, (NS) 194 : 2 Dow & C11] ,“is restive horse and when you get astride of it, there is noknowing where it will carry you”. Public policy can, therefore, bea very unsafe, questionable and unreliable ground for judicialdecision and courts cannot, but be very cautious to mount thisBtreacherous horse even if they must. This doctrine, as pointed outby this Court in Gherulal Parakh case [AIR 1959 SC 781 : 1959Supp 2 SCR 406] (ibid.), can be applied only in case whereclear and undeniable harm to the public is made out. To quote thewords of Subba Rao, J. (as he then was):

Though theoretically it may be permissible to evolve newhead (of public policy) under exceptional circumstances of achanging world, it is advisable in the interest of stability ofsociety not to make any attempt to discover new heads in thesedays.

There are no circumstances, whatever, which would show thatthe withdrawal of the resignation by the appellant would causeharm to the public or even to an individual. The contention,therefore, is repelled.”

43. This Court’s judgment in Central Inland Water TransportECorpn. v. Brojo Nath Ganguly, (1986) 3 SCC 156, after referring tothe case law on the subject, then held:

“92. The Indian Contract Act does not define the expression “publicpolicy” or “opposed to public policy”. From the very nature ofthings, the expressions “public policy”, “opposed to public policy”,For “contrary to public policy” are incapable of precise definition.Public policy, however, is not the policy of particular government.It connotes some matter which concerns the public good and thepublic interest. The concept of what is for the public good or inthe public interest or what would be injurious or harmful to theGpublic good or the public interest has varied from time to time. Asnew concepts take the place of old, transactions which were onceconsidered against public policy are now being upheld by the courtsand similarly where there has been well-recognized head ofpublic policy, the courts have not shirked from extending it to newtransactions and changed circumstances and have at times not

even flinched from inventing new head of public policy. Thereare two schools of thought— “the narrow view” school and “thebroad view” school. According to the former, courts cannot createnew heads of public policy whereas the latter countenances judiciallaw-making in this area. The adherents of “the narrow view”school would not invalidate contract on the ground of publicpolicy unless that particular ground had been well-established byauthorities. Hardly ever has the voice of the timorous spoken moreclearly and loudly than in these words of Lord Daveyin Janson v. Driefontein Consolidated Gold Mines Ltd. [(1902)AC 484, 500]: “Public policy is always an unsafe and treacherousground for legal decision”. That was in the year 1902. Seventy-eight years earlier, Burrough, J., in Richardson v. Mellish [(1824)2 Bing 229, 252 : 130 ER 294, 303 and (1824-34) All ER 258, 266]described public policy as “a very unruly horse, and when onceyou get astride it you never know where it will carry you”. TheMaster of the Rolls, Lord Denning, however, was not man toshy away from unmanageable horses and in words which conjureup before our eyes the picture of the young Alexander the Greattaming Bucephalus, he said in Enderby Town Football ClubLtd. v. Football Assn. Ltd. [(1971) Ch 591, 606]: “With goodman in the saddle, the unruly horse can be kept in control. It canjump over obstacles.” Had the timorous always held the field, notonly the doctrine of public policy but even the common law or theprinciples of Equity would never have evolved. Sir WilliamHoldsworth in his History of English Law Vol. III, p. 55, hassaid:

“In fact, body of law like the common law, which has grownup gradually with the growth of the nation, necessarily acquiressome fixed principles, and if it is to maintain these principles itmust be able, on the ground of public policy or some other likeground, to suppress practices which, under ever new disguises,seek to weaken or negative them.”

It is thus clear that the principles governing public policy must beand are capable, on proper occasion, of expansion or modification.Practices which were considered perfectly normal at one timehave today become obnoxious and oppressive to publicconscience. If there is no head of public policy which covers

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610SUPREME COURT REPORTS

Acase, then the court must in consonance with public conscienceand in keeping with public good and public interest declare suchpractice to be opposed to public policy. Above all, in deciding anycase which may not be covered by authority our courts have beforethem the beacon light of the Preamble to the Constitution. Lackingprecedent, the court can always be guided by that light and theBprinciples underlying the Fundamental Rights and the DirectivePrinciples enshrined in our Constitution.”

44. Likewise, in Rattan Chand Hira Chand v. Askar NawazJung, (1991) 3 SCC 67, this Court took the view that:

C“17. I am in respectful agreement with the conclusion arrived atby the High Court. It cannot be disputed that contract whichhas tendency to injure public interests or public welfare is oneagainst public policy. What constitutes an injury to public interestsor welfare would depend upon the times and climes. The socialmilieu in which the contract is sought to be enforced would decideDthe factum, the nature and the degree of the injury. It is contraryto the concept of public policy to contend that it is immutable,since it must vary with the varying needs of the society. Whatthose needs are would depend upon the consensus value judgmentsof the enlightened section of the society. These values mayEsometimes get incorporated in the legislation, but sometimes theymay not. The legislature often fails to keep pace with the changingneeds and values nor is it realistic to expect that it will have providedfor all contingencies and eventualities. It is, therefore, not onlynecessary but obligatory on the courts to step in to fill the lacuna.When courts perform this function undoubtedly they legislateFjudicially. But that is kind of legislation which stands implicitlydelegated to them to further the object of the legislation and topromote the goals of the society. Or to put it negatively, to preventthe frustration of the legislation or perversion of the goals andvalues of the society. So long as the courts keep themselvesGtethered to the ethos of the society and do not travel off its course,so long as they attempt to furnish the felt necessities of the timeand do not refurbish them, their role in this respect has to bewelcomed.”

45. In Renusagar Power Co. Ltd. v. General Electric Co.,H1994 Supp (1) SCC 644, this Court held:

“48. Since the doctrine of public policy is somewhat open-texturedand flexible, Judges in England have shown certain degree ofreluctance to invoke it in domestic law. There are two conflictingpositions which are referred as the ‘narrow view’ and the ‘broadview’. According to the narrow view courts cannot create newheads of public policy whereas the broad view countenancesjudicial law making in this areas. (See : Chitty on Contracts, 26thEdn., Vol. I, para 1133, pp. 685-686). Similar is the trend of thedecision in India. In Gherulal Parakh v. Mahadeodas Maiya[1959 Supp 2 SCR 406 : AIR 1959 SC 781] this Court favouredthe narrow view when it said:

“… though the heads are not closed and though theoretically itmay be permissible to evolve new head under exceptionalcircumstances of changing world, it is admissible in the interestof stability of society not to make any attempt to discover newheads in these days” (p. 440)

49. In later decisions this Court has, however, leaned towards thebroad view. [See : Murlidhar Agarwal v. State of U.P. [(1974) 2SCC 472, 482 : (1975) 1 SCR 575, 584]; Central Inland WaterTransport Corpn. v. Brojo Nath Ganguly [(1986) 3 SCC 156,217]; Rattan Chand Hira Chand v. Askar Nawaz Jung [(1991)3 SCC 67, 76-77].]”

46. In Zoroastrian Coop. Housing Society Ltd. v. DistrictRegistrar, Coop. Societies (Urban), (2005) 5 SCC 632, this Courtheld:

“38. It is true that our Constitution has set goals for ourselves andone such goal is the doing away with discrimination based onreligion or sex. But that goal has to be achieved by legislativeintervention and not by the court coining theory that whatever isnot consistent with the scheme or provision of the Constitution,be it under Part III or Part IV thereof, could be declared to beopposed to public policy by the court. Normally, as stated by thisCourt in Gherulal Parakh v. Mahadeodas Maiya [1959 Supp(2) SCR 406 : AIR 1959 SC 781] the doctrine of public policy isgoverned by precedents, its principles have been crystallised underthe different heads and though it was permissible to expound andapply them to different situations it could be applied only to clearand undeniable cases of harm to the public. Although, theoretically

Ait was permissible to evolve new head of public policy inexceptional circumstances, such course would be inadvisable inthe interest of stability of society.”

47. In State of Rajasthan v. Basant Nahata, (2005) 12 SCC 77,this Court held:B“

“39. The principles have been crystallised under different headsand though it may be possible for the courts to expound and applythem to different situations but it is trite that the said doctrineshould not be taken recourse to in “clear and incontestable casesof harm to the public though the heads are not closed and thoughCtheoretically it may be permissible to evolve new head underexceptional circumstances of changing world”. (See GherulalParakh v. Mahadeodas Maiya [1959 Supp (2) SCR 406 : AIR1959 SC 781].)”

48. In Vodafone International Holdings BV v. Union of India,D(2012) 6 SCC 613, this Court held:

“263. This Court in Gherulal Parakh v. Mahadeodas Maiya[AIR 1959 SC 781 : 1959 Supp (2) SCR 406] held that freedomof contract can be restricted by law only in cases where it is forsome good of the community. The Companies Act, 1956 or theEFERA, 1973, RBI Regulation or the IT Act do not explicitly orimpliedly forbid shareholders of company to enter intoagreements as to how they should exercise voting rights attachedto their shares.”

49. reading of the aforesaid judgments leads to the conclusionthat freedom of contract needs to be balanced with clear and undeniableFharm to the public, even if the facts of particular case do not fall withinthe crystallised principles enumerated in well-established ‘heads’ of publicpolicy. The question that then arises is whether there is anything in thepublic policy of India, as so understood, which interdicts the partyautonomy of two Indian persons referring their disputes to arbitration atGa neutral forum outside India.

50. It can be seen that exception 1 to section 28 of the ContractAct specifically saves the arbitration of disputes between two personswithout reference to the nationality of persons who may resort toarbitration. It is for this reason that this Court in Atlas (supra) referredHto the said exception to section 28 and found that there is nothing in

either section 23 or section 28 which interdicts two Indian parties fromgetting their disputes arbitrated at neutral forum outside India.

51. However, it was argued by Shri Himani, with specific referenceto section 28(1)(a) and section 34(2A) of the Arbitration Act, that sincetwo Indian parties cannot opt out of the substantive law of India andtherefore, ought to be confined to arbitrations in India, Indian public policy,as reflected in these two sections, ought to prevail. We are unable toagree with this argument. It will be seen that section 28(1)(a) of theArbitration Act, when read with section 2(2), section 2(6) and section 4,only makes it clear that where the place of arbitration is situated in India,in an arbitration other than an international commercial arbitration (i.e.an arbitration where none of the parties, inter alia, happens to be anational of foreign country or habitually resident in foreign country),the arbitral tribunal shall decide the dispute in accordance with thesubstantive law for the time being in force in India.

52. It can be seen that section 28(1)(a) of the Arbitration Actmakes no reference to an arbitration being conducted between two Indianparties in country other than India, and cannot be held, by some tortuousprocess of reasoning, to interdict two Indian parties from resolving theirdisputes at neutral forum in country other than India.

53. Take the case of an Indian national who is habitually residentin country outside India. Any dispute between such Indian national andan Indian national who is habitually resident in India would attract theprovisions of section 2(1)(f)(i) and, consequently, section 28(1)(b) of theArbitration Act, in which case two Indian nationals would be entitled tohave their dispute decided in India in accordance with the rules of lawdesignated by the parties as applicable to the substance of the dispute,which need not be Indian law. This, by itself, is strong indicator thatsection 28 of the Arbitration Act cannot be read in the manner suggestedby Mr. Himani.

54. Even otherwise, BALCO (supra), which has been referredto by the Madhya Pradesh High Court in Sasan I (supra), in paragraph118 thereof specifically indicated that section 28(1)(a) of the ArbitrationAct will not apply where the seat is outside India as, in that event, theconflict of law rules of the country in which the arbitration takes placewould have to be applied.

55. Coming to the example given by Shri Himani, namely, that theapplication of the Benami Transactions Act cannot be sought to be

Acircumvented by two Indian nationals by resorting to an arbitration in aseat outside India, it is more than likely that, as in the present case, twoIndian nationals will apply the substantive law of India to disputes betweenthem which arise from breach of contract which takes place in India.Even in the absence of any designation of which rules will apply to thesubstance of the dispute, which dispute pertains to transactions concludedBin India and breach thereof, the substantive law of India will be appliedby the arbitrator in accordance with the conflict of law rules of thecountry in which the arbitration takes place. Dicey, Morris and Collinson the Conflict of Laws (Sweet & Maxwell, 15[th] Edn.) states as follows:

“Rule 224 – (1)(a) Where all other elements relevant to the situationCat the time of the choice are located in country other than thecountry whose law has been chosen, the choice of the partiesshall not be prejudice the application of provisions of the law ofthat other country which cannot be derogated from by agreement.”

“The principle in Ralli Bros.: It has already been seen that atcommon law there was thought to be principle that contract(whether lawful by its governing law or not) was, in general, invlaidin so far as the performance of it was unlawful by the law of thecountry where the contract was to be performed (lex lociEsolutionis). This principle as formulated in the second edition ofthis work, was adopted by the Court of Appeal in the Ralli Broscase. There remains question, however, whether it is rule ofthe conflict of laws (as its formulation would suggest) or is, on thecontrary, principle of the domestic law of contract relating toFsupervening illegality. The answer affects the question whetherthe principle has any application since the incorporation of theRome Convention and the enactment of the Rome I Regulation.It is clear that if an English contract was to be performed abroad,the English court would refuse to enforce it if its performancewould directly or indirectly violate the law of the place ofGperformance. Hence an agreement governed by English law forthe payment in Spain of chartered freight beyond the maximumpermitted by Spanish law did not support an action in England.Where such contract was illegal ab initio according to the foreignlaw and was made by the parties with the object of defying theforeign law, its invalidity would often follow from general principleH

of public policy stated below in connection with Rule 229. We arehere mainly concerned with contracts which are not against thepublic policy of this country by reason of their interference withthe friendly relations towards foreign government, but whichnevertheless involve the doing of something unlawful accordingto the law of the country in which the contractual obligation is tobe performed, e.g. because performance was rendered illegal bythe lex loci solutionis after the making of the contract. If Englishlaw is the governing law of the contract, the consequences ofillegality, whether initial or supervening, according to the law ofthe place of performance will be identical with those which arisefrom the initial or supervening illegality according to Englishdomestic law of contract to be performed in England.

For the principle in Ralli Bros, as so understood, to be applicable itis necessary that “performance includes the doing in foreigncountry of something which the laws of that country make it illegalto do. What this means is not that performance is excusedwhenever it includes an act in country whose law makes thisact illegal. It is not enough that performance is excused, or thatthe act is unlawful by the law of the country in which it happensto be done, or that the contract is contrary to public policy accordingto the law of the place of performance. It must be “unlawful bythe law of the country in which the act has to be done,” i.e. by thelaw of the country in which, according to its express or impliedterms, the contract is to be performed. It would not matter whetherthe person liable to perform would, by doing so, infringe the lawsof the foreign country in which he is resident or carries on business,or of which he is national, if the law of that country is neither thegoverning law of the contract nor the lex loci solutionis.Up to this point the question of the consequences of illegalityaccording to the lex loci solutionis is covered by authority. It was,however, doubtful and highly controversial whether, according tothe English rules of the conflict of laws, illegality according to thelex loci solution is as such had any effect on the validity or operationof contract governed by foreign law and to be performed in athird country, i.e. in foreign country other than that of thegoverning law. Would an English court enforce French contractfor the payment in Spain of chartered freight beyond the maximum

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permitted by Spanish law? Would it hold that the consequences ofsuch illegality were governed by Spanish law, the lex loci solutionis,or would it leave it to French law, the governing law of the contract,to determine whether illegality according to the lex loci solutionishad any, and if so what, effect upon the validity and operation ofthe contract?

The prevailing academic view was that supervening illegalityaccording to the law of the place of performance did not as suchprevent an English court from enforcing the contract, unless itwere governed by English law. The principle in Ralli Bros, on thisview, was not principle of the conflict of laws at all, but merelyCan application of the English domestic rules with regard to thedischarge or suspension of contractual obligations by superveningillegality, and the illegality of performance under the lex locisolutionis was no more than fact to be taken into account by anEnglish court in judging whether performance had becomeDimpossible. Whether an English court would enforce Frenchcontract for the doing in Spain of something which Spanish lawhad forbidden after the making of the contract would depend onFrench law, and, in particular, on the French law of suspension ordischarge of contracts. There was no direct authority on the point.In Kahler v. Midland Bank Ltd. Lord Reid said that “the law ofEEngland will not require an act to be done in performance of anEnglish contract if such act….would be unlawful by the law ofthe country in which the act has to be done.” In ZivnostenskaBanka v. Frankman, however, he regarded it as “settled law that,whatever be the proper law of the contract, an English court willFnot require party to do an act in performance of contractwhich would be an offence under the law in force at the placewhere the act is to be done.”

56. The case of Ralli Brothers was followed in Foster v.Driscoll 1929 1 Kings Bench 470. Both these judgments were thenGreferred to in Regazzoni v. KC Sethia [1958] A.C. 301. In this case,the House of Lords decided case in which the respondents agreed tosell and deliver to the appellant, jute bags. Both parties contemplatedthat they should be shipped from India to Genoa for resale in SouthAfrica. The parties were also aware that the export of jute from India toSouth Africa was prohibited by Indian law. Despite the fact that EnglishHlaw was the proper law of the contract, the House of Lords held that the

contract was unenforceable since an English court will not enforce acontract which violates the law of foreign and friendly state. VicountSimonds put it thus:

“The question then arises — and it is, as I say, the only questionfor your Lordships’ consideration — whether the respondents werejustified in repudiating the contract. They claim to be justified onthe ground that I have already stated. Their broad proposition isthat whether or not the proper law of the contract is English law,an English court will not enforce contract, or award damagesfor its breach, if its performance will involve the doing of an act ina foreign and friendly State which violates the law of that State.For this they cite the authority of the well-known case of Fosterv. Driscoll, [1929] 1 K.B. 470 and much of the debate in thisHouse has been whether that case was rightly decided, and if so,whether it is distinguishable from the present case. The appellantcontends that it was not rightly decided, and further invokes afamiliar principle which he states in these wide but questionableterms, “An English court will not have regard to foreign law ofa penal, revenue, or political character,” and claims that the Indianlaw here in question is of such character.”

“Here, my Lords, was formidable line of authority when in 1920Ralli Brothers v. Compañia Naviera Sota y Aznar, [1920] 2 K.B.287 came before the Court of Appeal. In that case the contract insuit was governed by English law but it required the performancein Spain of an act illegal by Spanish law, and it was held that forthat reason it could not be enforced. I will cite one passage onlyfrom the judgment of Scrutton L.J. “Where,” he said, [1920] 2K.B. 287, 304: ”a contract requires an act to be done in foreigncountry, it is, in the absence of very special circumstances, animplied term of the continuing validity of such provision that theact to be done in the foreign country shall not be illegal by the lawof that country. This country should not in my opinion assist orsanction the breach of the laws of other independent States.” Inthe Ralli Brothers case, [1920] 2 K.B. 287, the relevant law wasnot revenue law, and I am content to assume that Scrutton L.J.might have qualified his statement if he had had such law in

ABC

mind. But I venture to return to what I said earlier in this opinion.It does not follow from the fact that today the court will not enforcea revenue law at the suit of foreign State that today it will enforcea contract which requires the doing of an act in foreign countrywhich violates the revenue law of that country. The two thingsare not complementary or co-extensive. This may be seen if forrevenue law penal law is substituted. For an English court will notenforce penal law at the suit of foreign State, yet it would besurprising if it would enforce contract which required thecommission of crime in that State. It is sufficient, however, forthe purposes of the present appeal to say that, whether or not anexception must still be made in regard to the breach of revenuelaw in deference to old authority, there is no ground for making anexception in regard to any other law. I should myself have said —and this is, I think, the only point upon which I do not agree withthe Court of Appeal — that the present case was precisely coveredby the decision in Ralli Brothers, [1920] 2 K.B. 287. For whenthe fact is found that the very thing which the parties intended todo was to export the jute bags from India in order that they mightgo via Genoa to the Union of South Africa, it appears to meirrelevant that upon the face of the documents that wrongfulintention was not disclosed. But, whether this is so or not, it isclearly covered by Foster v. Driscoll, [1929] 1 K.B. 470, decisionthe correctness of which is not to be doubted. The distinctivefeature of the case was that Scrutton L.J. thought that the contractthere in question could be carried out legally, and forthat reason,differing from Lawrence and Sankey L.JJ., held that it was notinvalid. The principle of the decision in Ralli Brothers, [1920] 2K.B. 287 was emphatically reasserted and the apparent innocenceof the documents was disregarded, the guilty intention being provedab extra. So, here, it has been conclusively found that the commonintention of the parties was to violate the law of India, and it is ofno consequence that the documents did not disclose their intention.I ought not to part from the case without noting that Sankey L.J.observed that the cases relating to the breach of revenue lawwere not germane to the issue. Nor are they germane to thisappeal. Whether they are still to be regarded as binding authorityis question that must await determination.”

(at pages 321-323)

Lord Reid, concurring, held:

“The only recent authority which is directly in point is Foster v.Driscoll, [1929] 1 K.B. 470. There Scrutton L.J. dissented becausehe took different view of the facts: if he had held that performanceof the contract necessarily involved breach of American law, Ithink that he would have agreed with the majority. He said, [1929]1 K.B. 470, 496: “I have no doubt that if seller and buyer agreedto ship the whisky into the United States contrary to the laws ofthat country the contract would not be enforced here: Ralli’s case,[1920] 2 K.B. 287, not because it was illegal here but as matterof public policy based on international comity.” He then cited withapproval, [1929] 1 K.B. 470, 497, Dicey’s Conflict of Laws, 4thed., p. 620: “‘It must, however, be noted that if contract is anEnglish contract, it will only be held invalid on account of illegalityif it actually necessitates the performance in foreign and friendlycountry of some act which is illegal by the law of such country.’”And he also quoted with approval passage from the judgment ofBlackburn J. in Waugh v. Morris, (1873) L.R. 8 Q.B. 202, 208:“We quite agree, that, where contract is to do thing whichcannot be performed without violation of the law it is void,whether the parties knew the law or not. But we think, that toavoid contract which can be legally performed, on the groundthat there was an intention to perform it in an illegal manner, it isnecessary to show that there was the wicked intention to breakthe law; and, if this be so, the knowledge of what the law is becomesof great importance.” By “a thing which cannot be performedwithout violation of the law,” I think that Blackburn J. meant athing which the contract expressly or by clear implication requiresto be done. This contract does not require the seller to obtain thegoods from India: it is only after investigation of the facts that itappears that he could not have got them anywhere else. And thiscontract does not disclose the buyer’s intention to send the goodsto South Africa. On the face of it this contract could be performedwithout breach of the laws of any country. I shall also quotefrom what Lawrence L.J. said in Foster’s case, [1929] 1 K.B.470, 510:”On principle, however, I am clearly of opinion that apartnership formed for the main purpose of deriving profit fromthe commission of criminal offence in foreign and friendlycountry is illegal, even although the parties have not succeeded in

carrying out their enterprise, and no such criminal offence has infact been committed; and none the less so because the partiesmay have contemplated that if they could not successfully arrangeto commit the offence themselves they would instigate or aid andabet some other person to commit it.” These passages cover thepresent case, and I agree with them.

Finally, it was argued that, even if there be general rule that ourcourts will take notice of foreign laws so that agreements to breakthem are unenforceable, that rule must be subject to exceptionsand this Indian law is one of which we ought not to take notice. Itmay be that there are exceptions. I can imagine foreign lawCinvolving persecution of such character that we would regardan agreement to break it as meritorious. But this Indian law isvery far removed from anything of that kind. It was argued thatthis prohibition of exports to South Africa was hostile act againsta Commonwealth country with which we have close relations,Dthat such prohibition is contrary to inter national usage, and thatwe cannot recognize it without taking sides in the dispute betweenIndia and South Africa.My Lords, it is quite impossible for court in this country to setitself up as judge of the rights and wrongs of controversyEbetween two friendly countries, we cannot judge the motives orthe justifications of governments of other countries in these mattersand, if we tried to do so, the consequences might seriously prejudiceinternational relations. By recognizing this Indian law so that anagreement which involves breach of that law within Indianterritory is unenforceable we express no opinion whatever, eitherFfavourable or adverse, as to the policy which caused its enactment.In my judgment this appeal should be dismissed.”

(at pages 324-326)

57. It will thus be seen that where the law of India prohibits aGcertain act, the conflict of law rules as set down in Dicey’s authoritativetreatise will take care of this situation in most cases as the arbitratorswould then apply these rules on the ground of international comitybetween nations in cases which arise between two Indian nationals inan award made outside India, which would fall within the definition of“foreign award” under Section 44 of the 1996 Act.H

58. Even otherwise, ground may be made out under section 48against enforcement of foreign award where enforcement of suchaward would be contrary to the public policy of India. If, on the facts ofa given case, it is found that two Indian nationals have circumvented alaw which pertains to the fundamental policy of India, such foreign awardmay then not be enforced under section 48(2)(b) of the Arbitration Act.On the assumption that Mr. Himani’s example of the BenamiTransactions Act pertains to the fundamental policy of Indian law, if theforeign award is contrary to such fundamental policy, such award willthen not be enforced in India.

59. When it comes to the ground raised under section 34(2A) ofthe Arbitration Act, it is clear that in an international commercialarbitration, say, between an Indian national habitually resident outsideIndia and an Indian national resident in India, even when the arbitrationtakes place in India resulting in an award being made in India, the groundavailable under section 34(2A) would not be available, as it would notapply to an international commercial arbitration held in India. In agreeingto neutral forum outside India, parties agree that instead of one bite atthe cherry under section 34 of the Arbitration Act, where an arbitrationbetween two Indian nationals is conducted in India [with the grounds forsetting aside the award being available under section 34(2A)], what isinstead put in place by the parties is two bites at the cherry, namely, therecourse to court or tribunal in country outside India for setting asidethe arbitral award passed in that country on grounds available in thatcountry (which may be wider than the grounds available under section34 of the Arbitration Act), and then resisting enforcement under thegrounds mentioned in section 48 of the Arbitration Act. The balancingact between freedom of contract and clear and undeniable harm to thepublic must be resolved in favour of freedom of contract as there is noclear and undeniable harm caused to the public in permitting two Indiannationals to avail of challenge procedure of foreign county when,after foreign award passes muster under that procedure, its enforcementcan be resisted in India on the grounds contained in section 48 of theArbitration Act, which includes the foreign award being contrary to thepublic policy of India.

Party Autonomy

60. The decks have now been cleared to give effect to partyautonomy in arbitration. Party autonomy has been held to be the brooding

Aand guiding spirit of arbitration. Thus, in Bharat Aluminium Co. v.Kaiser Aluminium Technical Services Inc., (2016) 4 SCC 126, thisCourt held:

“5. Party autonomy being the brooding and guiding spirit inarbitration, the parties are free to agree on application of threedifferent laws governing their entire contract — (1) proper lawof contract, (2) proper law of arbitration agreement, and (3) properlaw of the conduct of arbitration, which is popularly and in legalparlance known as “curial law”. The interplay and application ofthese different laws to an arbitration has been succinctly explainedby this Court in Sumitomo Heavy Industries Ltd. v. ONGCLtd. [Sumitomo Heavy Industries Ltd. v. ONGC Ltd., (1998) 1SCC 305], which is one of the earliest decisions in that directionand which has been consistently followed in all the subsequentdecisions including the recent Reliance Industries Ltd. v. Unionof India [Reliance Industries Ltd. v. Union of India, (2014) 7SCC 603 : (2014) 3 SCC (Civ) 737] .”

“10. In the matter of interpretation, the court has to make differentapproaches depending upon the instrument falling for interpretation.Legislative drafting is made by experts and is subjected to scrutinyat different stages before it takes final shape of an Act, Rule orRegulation. There is another category of drafting by lawmen ordocument writers who are professionally qualified and experiencedin the field like drafting deeds, treaties, settlements in court, etc.And then there is the third category of documents made by laymenwho have no knowledge of law or expertise in the field. The legalquality or perfection of the document is comparatively low in thethird category, high in second and higher in first. No doubt, in theprocess of interpretation in the first category, the courts do makean attempt to gather the purpose of the legislation, its context andtext. In the second category also, the text as well as the purposeis certainly important, and in the third category of documents likewills, it is simply intention alone of the executor that is relevant. Inthe case before us, being contract executed between the twoparties, the court cannot adopt an approach for interpreting astatute. The terms of the contract will have to be understood inthe way the parties wanted and intended them to be. In that context,

particularly in agreements of arbitration, where party autonomy isthe grund norm, how the parties worked out the agreement, is oneof the indicators to decipher the intention, apart from the plain orgrammatical meaning of the expressions and the use of theexpressions at the proper places in the agreement.”

61. Likewise, in Centrotrade Minerals & Metal Inc. v.Hindustan Copper Ltd., (2017) 2 SCC 228, this Court held that two-tier arbitration, namely, an arbitration at an original forum followed by anappeal at an appellate forum, would not be interdicted by the ArbitrationAct, given the free party autonomy for parties to enter into an agreementas to choice of fora and procedure at such fora. Thereafter, this Court,under the head “party autonomy”, put it thus:

“Party autonomy

38. Party autonomy is virtually the backbone of arbitrations. ThisCourt has expressed this view in quite few decisions. In twosignificant passages in Bharat Aluminium Co. v. KaiserAluminium Technical Services Inc. [Bharat Aluminium Co. v.Kaiser Aluminium Technical Services Inc., (2016) 4 SCC 126 :(2016) 2 SCC (Civ) 580, Hon’ble Judges/Coram: Anil R. Dave,Kurian Joseph and Amitava Roy, JJ.] this Court dealt with partyautonomy from the point of view of the contracting parties and itsimportance in commercial contracts. In para 5 of the Report, itwas observed: (SCC p. 130)“5. Party autonomy being the brooding and guiding spirit inarbitration, the parties are free to agree on application of threedifferent laws governing their entire contract— (1) proper law ofcontract, (2) proper law of arbitration agreement, and (3) properlaw of the conduct of arbitration, which is popularly and in legalparlance known as “curial law”. The interplay and application ofthese different laws to an arbitration has been succinctly explainedby this Court in Sumitomo Heavy Industries Ltd. v. ONGC Ltd.,[Sumitomo Heavy Industries Ltd. v. ONGC Ltd., (1998) 1 SCC305] which is one of the earliest decisions in that direction andwhich has been consistently followed in all the subsequent decisionsincluding the recent Reliance Industries Ltd. v. Union ofIndia [Reliance Industries Ltd. v. Union of India, (2014) 7 SCC603 : (2014) 3 SCC (Civ) 737] .”

(emphasis in original)

Later in para 10 of the Report, it was held: (SCC pp. 131-32)

“10. In the matter of interpretation, the court has to make differentapproaches depending upon the instrument falling for interpretation.Legislative drafting is made by experts and is subjected to scrutinyat different stages before it takes final shape of an Act, Rule orRegulation. There is another category of drafting by lawmen ordocument writers who are professionally qualified and experiencedin the field like drafting deeds, treaties, settlements in court, etc.And then there is the third category of documents made by laymenwho have no knowledge of law or expertise in the field. The legalquality or perfection of the document is comparatively low in thethird category, high in second and higher in first. No doubt, in theprocess of interpretation in the first category, the courts do makean attempt to gather the purpose of the legislation, its context andtext. In the second category also, the text as well as the purposeis certainly important, and in the third category of documents likewills, it is simply intention alone of the executor that is relevant. In

the case before us, being contract executed between thetwo parties, the court cannot adopt an approach forinterpreting statute. The terms of the contract will have tobe understood in the way the parties wanted and intendedthem to be. In that context, particularly in agreements ofarbitration, where party autonomy is the grund norm, how theparties worked out the agreement, is one of the indicators todecipher the intention, apart from the plain or grammatical meaningof the expressions and the use of the expressions at the properplaces in the agreement.”

(emphasis in original)

39. In Union of India v. U.P. State Bridge Corpn. Ltd. [Unionof India v. U.P. State Bridge Corpn. Ltd., (2015) 2 SCC 52 :(2015) 1 SCC (Civ) 732] this Court accepted the view [ O.P.Malhotra on the Law and Practice of Arbitration and Conciliation(3rd Edn. revised by Ms Indu Malhotra, Senior Advocate)] thatthe A&C Act has four foundational pillars and then observed inpara 16 of the Report that: (SCC p. 64)

“16. First and paramount principle of the first pillar is ‘fair,speedy and inexpensive trial by an Arbitral Tribunal’.Unnecessary delay or expense would frustrate the very purpose

of arbitration. Interestingly, the second principle which isrecognised in the Act is the party autonomy in the choiceof procedure. This means that if particular procedure isprescribed in the arbitration agreement which the parties haveagreed to, that has to be generally resorted to.”

(emphasis in original)

40. This is also the view taken in Law and Practice ofInternational Commercial Arbitration [Chapter 6. Conduct ofthe Proceedings in Nigel Blackaby, Constantine Partasides, etal., Redfern and Hunter on International Arbitration [SixthEdn., © Kluwer Law International, Oxford University Press 2015]pp. 353-414, Para 6.07] wherein it is said:

“Party autonomy is the guiding principle in determining theprocedure to be followed in an international arbitration. It is aprinciple that is endorsed not only in national laws, but also byinternational arbitral institutions worldwide, as well as byinternational instruments such as the New York Conventionand the Model Law.”

41. However, the authors in Comparative InternationalCommercial Arbitration [Chapter 17: Determination of ApplicableLaw in Julian D.M. Lew, Loukas A. Mistelis, et al., ComparativeInternational Commercial Arbitration (Kluwer LawInternational 2003) pp. 411-437, Para 17-8] go step further inthat, apart from procedure, they say that party autonomy permitsparties to have their choice of substantive law as well. It is said:

“All modern arbitration laws recognise party autonomy,that is, parties are free to determine the substantive law orrules applicable to the merits of the dispute to be resolvedby arbitration. Party autonomy provides contracting partieswith mechanism of avoiding the application of an unfavourableor inappropriate law to an international dispute. This choice isand should be binding on the Arbitration Tribunal. This is alsoconfirmed in most arbitration rules.”

(emphasis in original)

42. Be that as it may, the legal position as we understand it is thatthe parties to an arbitration agreement have the autonomy to decide

Anot only on the procedural law to be followed but also the substantivelaw. The choice of jurisdiction is left to the contracting parties. Inthe present case, the parties have agreed on two-tier arbitrationsystem through Clause 14 of the agreement and Clause 16 of theagreement provides for the construction of the contract as acontract made in accordance with the laws of India. We see nothingBwrong in either of the two clauses mutually agreed upon by theparties.”

In very important passage, where it was sought to be arguedthat two-tier arbitration would be contrary to the public policy of India,this Court held:C“

“Public policy and two-tier arbitrations

43. The question that now arises is the interplay between publicpolicy and party autonomy and therefore whether embracing thetwo-tier arbitration system is contrary to public policy.

44. Years ago, it was said per Burroughs, J. in Amicable SocietyDv. Bolland [Amicable Society v. Bolland, (1830) 4 Bligh (NS)194 : 5 ER 70 : 2 Dow & Cl 1 : 6 ER 630. [Ed.: See also perBurroughs, J. in Richardson v. Mellish, 1824 Bing 229 at 252 :130 ER 293 at 303, wherein also he observed: “Public Policy — itis very unruly horse, and when once you get astride it you neverEknow where it will carry you.”]] (Fauntleroy case):

“Public policy is restive horse and when you get astride of it,there is no knowing where it will carry you.”

Perhaps to assist in getting over this uncertainty, Mustill and Boyd[The Law and Practice of Commercial Arbitration in England,FLondon, Butterworths 1982 pp. 245-246] identify four classes ofprovision regarded by the courts as contrary to public policy. Theyare: (i) Terms which affect the substantive content of the award;(ii) Terms which purport to exclude or restrict the supervisoryjurisdiction of the Court; (iii) Terms which require the arbitratorto conduct the reference in an unacceptable manner; and (iv)GTerms which purport to empower the arbitrator to carry putprocedures or exercise powers which lie exclusively within thejurisdiction of the courts. Clause 14 of the agreement betweenthe parties does not fall under any of these situations.”

“46. For the present we are concerned only with the fundamentalor public policy of India. Even assuming the broad delineation ofthe fundamental policy of India as stated in Associate Builders[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC(Civ) 204] we do not find anything fundamentally objectionable inthe parties preferring and accepting the two-tier arbitration system.The parties to the contract have not by-passed any mandatoryprovision of the A&C Act and were aware, or at least ought tohave been aware that they could have agreed upon the finality ofan award given by the arbitration panel of the Indian Council ofArbitration in accordance with the Rules of Arbitration of theIndian Council of Arbitration. Yet they voluntarily and deliberatelychose to agree upon second or appellate arbitration in London,UK in accordance with the Rules of Conciliation and Arbitrationof the International Chamber of Commerce. There is nothing inthe A&C Act that prohibits the contracting parties from agreeingupon second instance or appellate arbitration — either explicitlyor implicitly. No such prohibition or mandate can be read into theA&C Act except by an unreasonable and awkwardmisconstruction and by straining its language to vanishing point.We are not concerned with the reason why the parties (includingHCL) agreed to second instance arbitration — the fact is thatthey did and are bound by the agreement entered into by them.HCL cannot wriggle out of solemn commitment made by itvoluntarily, deliberately and with eyes wide open.”

Nothing stands in the way of party autonomy in designating seatof arbitration outside India even when both parties happen to be Indiannationals, as has been held hereinabove.

Section 10 of the Commercial Courts Act.

62. Shri Himani relied upon section 10 read with section 21 of theCommercial Courts Act to argue that in all cases between Indian nationalswhich result in awards delivered in country outside India, section 10(3)would apply, as result of which the impugned judgment having beenmade by High Court, is made without jurisdiction. In order to appreciatethis submission, sections 10 and 21 of the Commercial Courts Act areset out hereinbelow:

“10. Jurisdiction in respect of arbitration matters.—Wherethe subject-matter of an arbitration is commercial dispute of aspecified value and—

ABC

A(1)If such arbitration is an international commercial arbitration,all applications or appeals arising out of such arbitrationunder the provisions of the Arbitration and Conciliation Act,1996 (26 of 1996) that have been filed in High Court,shall be heard and disposed of by the Commercial Divisionwhere such Commercial Division has been constituted inBsuch High Court.

(2)If such arbitration is other than an international commercialarbitration, all applications or appeals arising out of sucharbitration under the provisions of the Arbitration andConciliation Act, 1996 (26 of 1996) that have been filed onCthe original side of the High Court, shall be heard anddisposed of by the Commercial Division where suchCommercial Division has been constituted in such HighCourt.

(3)If such arbitration is other than an international commercialDarbitration, all applications or appeals arising out of sucharbitration under the provisions of the Arbitration andConciliation Act, 1996 (26 of 1996) that would ordinarily liebefore any principal civil court of original jurisdiction in adistrict (not being High Court) shall be filed in, and heardEand disposed of by the Commercial Court exercisingterritorial jurisdiction over such arbitration where suchCommercial Court has been constituted.”

“21. Act to have overriding effect.—Save as otherwiseprovided, the provisions of this Act shall have effect,Fnotwithstanding anything inconsistent therewith contained in anyother law for the time being in force or in any instrument havingeffect by virtue of any law for the time being in force other thanthis Act.”

63. It must be remembered that when foreign award is soughtGto be enforced under Part II of the Arbitration Act, the explanation tosection 47 makes it clear that it is the High Court alone which is thecourt on whose doors the applicant must knock. This is sought to beanswered by Shri Himani by stating that since the explanation to section47 is in direct collision with section 10(3) of the Commercial Courts Act,vide section 21 of the Commercial Courts Act, section 10(3) would prevailHover the explanation to section 47.

64. Before entering into discussion as to whether there is anydirect collision between the aforesaid provisions, one is first to appreciatethe purport of the expression “international commercial arbitration”contained in section 10(1) of the Commercial Courts Act. We havealready seen how section 2(1)(f) of the Arbitration Act which definesthe expression “international commercial arbitration” is only for limitedpurpose, namely, for the purpose of Part I of the Arbitration Act. Undersection 2(2) of the Commercial Courts Act, words and expressions usedand not defined in the Commercial Courts Act but defined in the CPCand the Indian Evidence Act, 1872 shall have the same meaningsrespectively assigned to them in that Code and the Act. Conspicuous byits absence are definitions contained in the Arbitration Act.

65. We have therefore to see what is the purport of the expression“international commercial arbitration” when used in section 10(1) of theCommercial Courts Act.

66. We have already seen how “international commercialarbitration”, when used in the proviso to section 2(2) of the ArbitrationAct, does not refer to the definition contained in section 2(1)(f) but wouldhave reference to arbitrations which take place outside India, awardsmade in such arbitrations being enforceable under Part II of theArbitration Act. It will be noted that section 10(1) applies to internationalcommercial arbitrations, and applications or appeals arising therefrom,under both Parts I and II of the Arbitration Act. When applications orappeals arise out of such arbitrations under Part I, where the place ofarbitration is in India, undoubtedly, the definition of “internationalcommercial arbitration” in section 2(1)(f) will govern. However, whenapplied to Part II, “international commercial arbitration” has referenceto place of arbitration which is international in the sense of the arbitrationtaking place outside India. Thus construed, there is no clash at all betweensection 10 of the Commercial Courts Act and the explanation to section47 of the Arbitration Act, as an arbitration resulting in foreign award,as defined under section 44 of the Arbitration Act, will be enforceableonly in High Court under section 10(1) of the Commercial Courts Act,and not in district court under section 10(2) or section 10(3).

67. Even otherwise, this Court has made it clear in BGS SGSSOMA JV v. NHPC, (2020) 4 SCC 234 (at paragraphs 12 and 13) thatthe substantive law as to appeals and applications is laid down in theArbitration Act whereas the procedure governing the same is laid down

Ain the Commercial Courts Act. In this context, it has also been held thatthe Arbitration Act is special Act vis-à-vis the Commercial Courts Actwhich is general, and which applies to the procedure governing appealsand applications in cases other than arbitrations as well. In KandlaExport Corpn. v. OCI Corpn., (2018) 14 SCC 715, this Court held:

B“20. Given the judgment of this Court in Fuerst Day Lawson[Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2011) 8 SCC333 : (2011) 4 SCC (Civ) 178] , which Parliament is presumed toknow when it enacted the Arbitration Amendment Act, 2015, andgiven the fact that no change was made in Section 50 of theArbitration Act when the Commercial Courts Act was broughtCinto force, it is clear that Section 50 is provision contained in aself-contained code on matters pertaining to arbitration, and whichis exhaustive in nature. It carries the negative import mentionedin para 89 of Fuerst Day Lawson [Fuerst Day LawsonLtd. v. Jindal Exports Ltd., (2011) 8 SCC 333 : (2011) 4 SCCD(Civ) 178] that appeals which are not mentioned therein, are notpermissible. This being the case, it is clear that Section 13(1) ofthe Commercial Courts Act, being general provision vis-à-visarbitration relating to appeals arising out of commercial disputes,would obviously not apply to cases covered by Section 50 of theArbitration Act.”

“27. The matter can be looked at from slightly different angle.Given the objects of both the statutes, it is clear that arbitrationitself is meant to be speedy resolution of disputes between parties.Equally, enforcement of foreign awards should take place as soonFas possible if India is to remain as an equal partner, commerciallyspeaking, in the international community. In point of fact, the raisond’être for the enactment of the Commercial Courts Act is thatcommercial disputes involving high amounts of money should bespeedily decided. Given the objects of both the enactments, if wewere to provide an additional appeal, when Section 50 does awayGwith an appeal so as to speedily enforce foreign awards, we wouldbe turning the Arbitration Act and the Commercial Courts Act ontheir heads. Admittedly, if the amount contained in foreign awardto be enforced in India were less than Rs 1 crore, and SingleJudge of High Court were to enforce such award, no appealHwould lie, in keeping with the object of speedy enforcement of

foreign awards. However, if, in the same fact circumstance, aforeign award were to be for Rs 1 crore or more, if the appellantsare correct, enforcement of such award would be further delayedby providing an appeal under Section 13(1) of the CommercialCourts Act. Any such interpretation would lead to absurdity, andwould be directly contrary to the object sought to be achieved bythe Commercial Courts Act viz. speedy resolution of disputes of acommercial nature involving sum of Rs 1 crore and over. Forthis reason also, we feel that Section 13(1) of the CommercialCourts Act must be construed in accordance with the object soughtto be achieved by the Act. Any construction of Section 13 of theCommercial Courts Act, which would lead to further delay, insteadof an expeditious enforcement of foreign award must, therefore,be eschewed. Even on applying the doctrine of harmoniousconstruction of both statutes, it is clear that they are bestharmonised by giving effect to the special statute i.e. the ArbitrationAct, vis-à-vis the more general statute, namely, the CommercialCourts Act, being left to operate in spheres other than arbitration.”

68. It is interesting to note that the Arbitration and Conciliation(Amendment) Act, 2015 and the Commercial Courts Act, 2015, bothcame into effect from 23.10.2015. In R.S. Raghunath v. State ofKarnataka, (1992) 1 SCC 335, this Court held that even later generallaw which contains non-obstante clause does not override speciallaw as both must be held to operate as follows:

“13. As already noted, there should be clear inconsistencybetween the two enactments before giving an overriding effect tothe non-obstante clause but when the scope of the provisions ofan earlier enactment is clear the same cannot be cut down byresort to non-obstante clause. In the instant case we have noticedthat even the General Rules of which Rule 3(2) forms partprovide for promotion by selection. As matter of fact Rules1(3)(a) and 3(1) and 4 also provide for the enforceability of theSpecial Rules. The very Rule 3 of the General Rules which providesfor recruitment also provides for promotion by selection and furtherlays down that the methods of recruitment shall be as specified inthe Special Rules, if any. In this background if we examine theGeneral Rules it becomes clear that the object of these Rulesonly is to provide broadly for recruitment to services of all thedepartments and they are framed generally to cover situations

ABC

Athat are not covered by the Special Rules of any particulardepartment. In such situation both the Rules including Rules1(3)(a), 3(1) and 4 of General Rules should be read together. Ifso read it becomes plain that there is no inconsistency and thatamendment by inserting Rule 3(2) is only an amendment to theGeneral Rules and it cannot be interpreted as to supersede theBSpecial Rules. The amendment also must be read as being subjectto Rules 1(3)(a), 3(1) and 4(2) of the General Rules themselves.The amendment cannot be read as abrogating all other SpecialRules in respect of all departments. In given case where thereare no Special Rules then naturally the General Rules would beCapplicable. Just because there is non-obstante clause, in Rule3(2) it cannot be interpreted that the said amendment to the GeneralRules though later in point of time would abrogate the special rulethe scope of which is very clear and which co-exists particularlywhen no patent conflict or inconsistency can be spelt out. Asalready noted Rules 1(3)(a), 3(1) and 4 of the General RulesDthemselves provide for promotion by selection and forenforceability of the Special Rules in that regard. Therefore thereis no patent conflict or inconsistency at all between the Generaland the Special Rules.”

69. Consequently, this argument of the appellant also fails.

Whether an application under section 9 of the Arbitration

Act would lie

70. Mr. Dewan, by way of cross objection, has challenged thefinding of the Gujarat High Court by the impugned judgment that thesection 9 application that was made by the respondent was notmaintainable by reason of the expression “international commercialFarbitration” appearing in the proviso to section 2(2) having the meaningto be ascribed by section 2(1)(f) of the Arbitration Act. We have alreadyheld in paragraph 14 above that this view of the law is incorrect.Consequently, this part of the judgment is set aside, it being held that theapplication made by the respondent under section 9 would be maintainable.

71. In light of the findings arrived at by us, we uphold the impugnedjudgment of the Gujarat High Court, except for the finding on the section9 application of the respondent being held to be non-maintainable. Theappeal is disposed of accordingly.

HNidhi Jain