Handelsbanken Vs. Indian Charge Chrome Ltd.  INSC 51 (24 January 1994)
Dayal (J) Yogeshwar Dayal (J) Verma, Jagdish Saran (J) Jeevan Reddy, B.P. (J)
1994 SCR (1) 261 1994 SCC (2) 155 JT 1994 (1) 240 1994 SCALE (1)156
Judgment of the Court was delivered by YOGESHWAR DAYAL, J.- Special leave
granted in all these three matters. Heard. As the matters have been heard at
length, the appeals are being disposed of.
the three appeals arising out of the above said special leave petitions are
directed against the order passed by the Single Judge of the High Court of Orissa
at Cuttack dated June 17, 1993 whereby the Single Judge of the High Court
dismissed three Civil Revision Petition Nos. 282, 283 and 284 of 1992 filed by
defendant 4, defendants 5 to 11 and defendants 1 to 3 respectively in Title
Suit No. 208 of 1991. All the three civil revision petitions arose out of the
common order passed by the Subordinate Judge, Athagarh in proceedings arising
out of three applications filed by the aforesaid set of defendants for stay of
the suit filed by the plaintiff invoking Section 3 of the Foreign Awards
(Recognition and Enforcement) Act, 1961 (hereinafter referred to as 'the
Foreign Awards Act').
we deal with the applications, it would be useful to state a few facts relevant
for purposes of the decisions of these appeals.
suit out of which the present appeals arise was filed by the plaintiff
(hereinafter referred to as the 'borrower') before the Subordinate Judge, Cuttack
for various reliefs against defendants 1 to 3 (hereinafter referred to as the
'suppliers'); defendants 4 to 11 (hereinafter referred to as the 'lenders');
and defendant 12, Industrial Development Bank of India, (hereinafter referred
to as the 'guarantor'). Defendant 13 in the suit is M/s Indian Metals &
Ferro Alloys Ltd., (in short 'IMFA').
issued a global tender for setting up a captive power plant, viz., a coal-fired
power plant in Choudwar, Orissa. The tender indicated that credit by the
suppliers will be preferred. The suppliers submitted their tenders in this
regard. Since the tender indicated that suppliers' credit for the entire
project would be preferred, the suppliers approached defendant 4 (one of the
lenders) to finance the project and inquiries were made to find out the
possibilities for financial assistance by the Swedish Government in the form of
interest at subsidised rates. As a result of negotiations the three suppliers
entered into three contracts with the plaintiff.
4 (one of the lenders) formed a consortium of banks with defendants 5 to 11 and
an American Bank for financing the project. The American Bank subsequently
assigned its interest in favour of one of the defendant banks (lenders). The
lenders entered into two credit agreements dated October 30, 1984 with the borrower. The credit agreements were also entered
into by defendant 4 for itself and on behalf of defendants 5 to 11. A third
credit agreement dated November
15, 1984 was also
entered into between the borrower and defendant 4 (lender) in its individual
capacity. It is not necessary, for the purposes of present proceedings, to
mention the quantum of credit agreements except to state that two additional
credit agreements were also entered into between the borrower and the lenders
supplemental to the first and second credit agreements providing for additional
loans. All the credit agreements inter alia purported to provide payments by
the lenders to the suppliers on various documents, as provided in the credit
agreements, being presented to the lenders and also against a notice of draw
down by the borrower. In relation to the third credit agreement the
disbursements were to be made directly to the lenders in respect of the financial
cost payable by the borrower upon notice of draw down by the borrower.
loans were required to be repaid by twenty (subsequently amended to eighteen)
equal semi-annual (six monthly) consecutive installments. The repayments were
required to be made by the borrower without demand or notice. It was
specifically provided in the credit agreements that:
amounts payable by the borrower shall be paid without set-off or counter-claim.
The liability of the borrower to effect any payment under this agreement is
thus unconditional and shall not in any way be 159 dependent upon the
performance of the contracts i.e. the agreements between the borrower and the
suppliers-exporters or be affected by any other claim which the borrower may
have against the exporters or against any other party (natural or legal)
collaborating with the exporters. " The credit agreements also provided:
disputes arising from the provisions of this agreement or its performance shall
be finally settled by arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by three arbitrators
appointed in accordance with these rules. Arbitration shall take place in Stockholm and be conducted in the English
language. The award of the arbitral tribunal is final and obligatory for the
parties without any right for a further appeal or contestation of its
fulfillment. The borrower hereby expressly submits to the jurisdiction of the
above mentioned arbitration tribunal." 8.The credit agreements also provided
that the borrower shall furnish guarantees in favour of the lenders as security
for the loans covering 100% of each of the loans plus interest, costs and fees
payable under the credit agreements. As quoted above, the agreements also
contained an arbitration clause which contemplates disputes arising from the
agreements to be finally settled by arbitration under the Rules of Conciliation
and Arbitration of the International Chamber of Commerce by three arbitrators
appointed in accordance with these rules. The arbitration is provided to take
place at Stockholm.
9.On June 24, 1989 the plaintiff (borrower) took-over
the plant and on June
25, 1989 issued a
On July 28, 1989 the plaintiff authorised defendant
4 to disburse the balance 5% of the payment to defendant 3 as well.
was on or about April
28, 1991 that the
present suit was filed by the plaintiff for:
declaration that the taking-over certificate dated June 25, 1989 is void/voidable instrument and the same may be delivered
be further declared that the plaintiff is entitled to diminution/extinction of
price towards the power plant as mentioned in Annexure 'A' to theplaint, in the
alternative, if the court finds, that any amount is payable todefendants 1 to
11 jointly or severally, the same be directed to be paid asper reschedule of
payment to be calculated on a cash flow basis on actual generation as
determined on inquiry;
decree of declaration that the guarantees obtained from defendants 12 and 13 by
defendants 1 to 11 are void/voidable instruments and ought to be delivered and
decree of perpetual injunction restraining defendants 12 and 13 from making
payments dated April 30, 1991 and payments falling due on subsequent dates
under any guarantee to defendant 4 and/or defendants 4 to 11; and
decree of perpetual injunction restraining defendants 4 to 11 from recalling
the loan and/or taking any steps from recovering the said loan either in full
or in part, etc. etc.
receipt of summons in the suit and notice on the application for interim
injunction filed by the plaintiff (borrower), defendants 1 to 3 (suppliers) did
not enter appearance. Defendant 4 (lender) entered appearance by power of
attorney dated June 28,
1991 specifically in
Misc. Case No. 143 of 1991 i.e. in relation to the application for interim
injunction without any reference to the main suit.
this power of attorney defendant 4 appointed S/Shri A. Misra, H.P. Rath and
P.N. Misra, Advocates on their behalf in Misc. Case No. 143 of 1991. Before
filing of the power of attorney, defendant 4 also wrote to the plaintiff's
counsel objecting to the jurisdiction of the court itself by letter dated May
31, 1991 and also sent a copy of this letter to the court opposing the order of
ad interim injunction dated April 25, 1991 whereby the Subordinate Judge, Cuttack
had injuncted defendant 12 from making payments to defendant 4. The letter
dated May 31, 1991 reads thus:
HANDELSBANKEN Stockholm, Sweden May 31, 1991 BY COURIER Mr Rajen Mahapatra
Advocate, 7-A/3, Girdhar Apartments, Feroz Shah Road, New Delhi 110 001, India.
Sir, Re: Order of injunction' dated April 25, 1991 the learned Subordinate
Judge, 1st Court, Cuttack, Orissa in Misc. Case No. 143 of 1991 arising out of
T.S. No. 208 of 1991.
have received two letters from you, both dated April 27, 199 1, in respect of
the above matter.
first was a short covering letter and the second was enclosed with it. The
second quotes the terms of an injunction apparently granted in the above
matter. Enclosed with it was a copy of what appears to be the notes of the
have never received anything further, either from you or from the Court. This
is even more puzzling is how your clients could have made such an application,
and how it could have been granted, when the Honorable Court quite clearly has
no jurisdiction over us as a Swedish Corporation with no presence in India, or
over any dispute between us and your client.
Your clients and we signed three main credit agreements under which your
clients' borrowings have taken place. Each of those agreements contained the
'All amounts payable by the borrower under the agreement shall be paid without
set- off or counter-claim. The liability of the borrower to effect any payment
under this agreement is thus unconditional and shall not in any way be
dependent upon performance of the contracts or be affected by any other claim
which the Borrower may have against the exporters or against any other party
(natural or legal) collaborating with the exporters.' (B) 'This agreement shall
be deemed to be made under and shall be construed in accordance with and
governed in all respects by Swedish Law.' (C) 'All disputes arising from the
provisions of this agreement or its performance shall be finally settled by
arbitration under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by three arbitrators appointed in accordance
with these rules. Arbitration shall take place in Stockholm and be conducted in the English
language. The award of the arbitral tribunal is final and obligatory for the
parties without any right for a further appeal or contestation of its
borrower hereby expressly submits to the jurisdiction of the above mentioned
arbitration tribunal.' In the light of the above we find it incomprehensible
how your client can seek to drag us into whatever dispute which he may have
with the builders of the power plant. Nor do we understand how you can wrongly
seek to circumvent the clearly provided sole forum, namely arbitration before
the International Chamber of Commerce, with the hearings to be in Stockholm.
sending a copy of this letter to the Honorable Court in Cuttack.
faithfully, Svenska Handelsbanken sd/- sd/- Lena Bertllsen Gudrun Lundin Hollinder"
The substance of the letter is that the contracts contained an arbitration
agreement which provided that all disputes arising from the provisions of
Agreement or its performance shall be finally settled by arbitration under the
Rules of Conciliation and Arbitration of the International Chamber of Commerce
by three arbitrators appointed in accordance with these rules. The arbitration agreement
was agreed to be governed by Swedish Law.
appears that an application dated June 28, 1991 was filed by defendant 4 for
vacating the interim injunction granted in Misc. Case No. 143 of 1991 and it
was this application with which the aforesaid power of attorney dated June 28, 1991, specifically mentioning Misc. Case
No. 143 of 1991, was filed in court. Written arguments were also filed on July 31, 1991 opposing the continuation of the
also appears that on the same date i.e. July 3 1, 1991 an application was filed
purporting to be on behalf of defendants 4 to 11 (lenders), without any power
of attorney from defendants 5 to 11, stating inter alia "that these
defendants are foreign banks and are residing outside the country, therefore
six weeks time may kindly be granted enabling these defendants to file their
not clear from the application which advocate had signed it.
appears that another application dated August 24, 1991, purporting to be on behalf of
defendants 4 to 11, without any power of attorney in favour of the counsel in
the suit, was filed again asking for time of eight weeks being granted to
defendants 4 to 11 to file their written statement.
or about November 1, 1991 the defendant 4 filed an
application purporting to be under Section 3 of the Foreign Awards Act for stay
of the suit. Another application under Section 3 of the Foreign Awards Act was
also filed on behalf of defendants 5 to II supported by a separate power of
attorney in favour of the counsel in the suit in support of the applications
under Section 3 of the Foreign Awards Act.
reply to the applications filed on behalf of defendant 4 and defendants 5 to 11
it was inter alia pleaded on behalf of the plaintiff that the applications
under Section 3 of the Foreign Awards Act were not maintainable and that
defendant 4 had taken steps in the proceedings and having participated in the
proceedings with a view to contest the same on merits, it is not entitled to
file the present application. Reference was made to the applications dated June 28, 1991 and August 24, 1991. Reference was also made to the application dated August 24, 1991 on behalf of defendants 5 to 11 as
well apart from taking other pleas to oppose the applications for stay.
the pendency of the applications under Section 3 of the Foreign Awards Act, in
reply to the objections filed by the plaintiff to the application, an affidavit
was filed on behalf of defendant 4 Ms Barbro Margareta Lundberg which denied
having taken any steps in the proceedings so as to disentitle defendant 4 from
making the application under Section 3 of the Foreign Awards Act. It was
It is denied that D-4 has taken any step in the proceedings so as to disentitle
it from moving this application under Section 3 of the Foreign Awards
(Recognition and Enforcement) Act, 1961 ('the 1961 Act') for the following
D-4 engaged the services of Shri D.A. Misra, ('Mr Misra') Advocate of Orissa High
Court, in or about June
Extensive discussions were held with Mr Misra at the offices of M/s Clifford
Chance in London (Solicitors of D-4) when it was made clear to Mr Misra that
under no circumstances should he take any steps whatever which might result in
D-4 being deemed to have submitted to the jurisdiction of the Indian Courts or
to have entered into the merits of the dispute in Suit No. 208 of 1991 because
D-4 wanted to reserve to itself the option of compelling plaintiff to arbitrate
the dispute, as agreed.
the presence and with the help of Mr Misra prepared an affidavit by Ms Helene Melin,
an officer of D-4, contesting the jurisdiction of the Indian Courts and relying
upon the arbitration provisions contained in the credit agreements. On behalf
of D-4, M/s Clifford Chance, by their letter of instructions dated June 19, 1991 expressly instructed Mr Misra to
take no steps in the action nor to do anything else which might be construed as
a submission to the jurisdiction of the Indian Courts in respect of this
matter. This letter was personally handed over to Mr Misra during the course of
the meetings held in London. In the presence of two officers of
D-4 and their said English Solicitors Mr Misra read the letter and accepted
these instructions. He assured his clients D-4 that he would act in accordance
with these very clear and explicit instructions. A copy of the letter dated June 19, 1991 is annexed as Annexure 'A'.
Vakalatnama issued by D-4 to Mr Misra in the injunction proceedings (Misc. Case
No. 143 of 1991) is restricted compared to the normal form. This was done
intentionally and was discussed and agreed with Mr Misra at the meetings in London in June 1991. The usual right of
substitution was deleted because D-4 wanted to control who was to represent it
in the injunction proceedings. Mr Misra indicated what names he wanted inserted
in the power of attorney, and wrote them down. D-4 asked questions about these
persons and Mr Misra gave information about them which satisfied D-4. ... D-4
intended to authorise the Mr Misra that it met in London to defend the injunction, not any
other person who may be called Misra.
D-4 has found that 'Misra' is a common name in Cuttack. D-4 submits that it is not bound by actions taken in its
name by Mr Ashouk Misra, or any other person who has not been authorized by it
in the Vakalatnama.
by letters dated July 17, and August 1, 1991,
M/s Clifford Chance instructed Mr Misra not to take any steps whatever in either
the misc. case application for an injunction brought by the plaintiff or in the
main suit, without instructions. They repeated their previous express
instructions that under no circumstances should steps be taken in the 164
action. Copies of the said letters dated July 17, and August 1, 1991 is annexed as Annexure 'B'.
appears that on or about July 3 1, 1991 a purported ,application' was filed
before this Hon'ble
Court seeking time to
file a written statement on behalf of D-4. It is submitted that this purported
'application' was filed contrary to the express prior instructions of D-4 and
in glaring breach of duty. He further purported to apply on behalf of
Respondents 5 to 11. As is plain from the annexures and in particular the Vakalatnama,
M r Misra was only instructed by and on behalf of D-4, and no one else.
further appears that a second 'application' was filed on August 24, 1991, seeking additional time to file a
written statement. Again, neither D-4 nor their English Solicitors were informed
in advance as to the filing of this application, and the filing of the document
took place contrary to the express instructions of both. Indeed on or about
August 13, 1991 a representative of M/s Clifford Chance traveled from Delhi to Cuttack
with Mr Misra to attend the court hearing on August 14, and also held meetings
with Mr Misra in Delhi and Cuttack on 13, 14, and 15 August. During those
meetings it was repeatedly stressed to Mr Misra how important it was for D-4 to
retain its ability to insist on arbitration as agreed by the parties in
writing, and accordingly that no step in the action be taken on behalf of D-4. Mr
Misra made no mention of the impugned application.
D-4 only became aware of the filing of the 'application' dated July 31, 1991 at the end of August 1991, and
immediately by their Solicitor's letter dated September 2, 1991 called upon Mr Misra to explain.
noteworthy, and very surprising that no mention was made of this 'application'
during the series of meetings held in India in mid- August referred to above,
or in correspondence or later telephone conversation.
his letter dated September
8, 1991, Mr Misra
informed D4's English Solicitors that the filing of an application for
adjournment for the purposes of filing a written statement does not amount to a
step in the action. A copy of that letter is annexed as Annexure 'C'. No
mention was made in this letter of the second 'application' dated August 24, 1991.
first time D-4 or its English Solicitors became aware of the second
'application' of August
24, 1991 was when it
was mentioned in plaintiff's objection filed herein. It came as a complete
(ix)As a result of his actions D-4 discharged Mr Misra as their Advocate by
letter dated October 16, 199 1. No reply was ever received to this letter.
However, Mr Misra sent D-4 an account for his services under cover of a letter
dated December 31, 1991 (Annexure Da). D-4 has refused to
pay this account in all the circumstances (Annexure Db).
The Vakalatnama granted to D-4's advocate was strictly limited by deliberate
choice. It is annexed hereto as Annexure 'E'.
full circumstances surrounding the grant of the Vakalatnama, were set out in
sub- paragraph (a) above. It will be observed that the Vakalatnama is in favour
of only the following persons 'Shri A. Misra, H.P. Rath, P. Panda, G. Rath, B. Das
is no right to delegate. The person who signed the two ,applications' dated
July 3 1, and August
24, 1991 respectively
was not authorized by D-4 in its Vakalatnama to act on its behalf.
documents are accordingly unauthorised, a nullity and void. It is submitted
that neither was an 'application' and accordingly neither constitutes a step in
will be observed, further, that the Vakalatnama is specifically given only in
respect of Misc. Case No. 143 of 199 1, and no other court proceedings. This
was also deliberate, because D-4 was at all times anxious to ensure that it
preserved its right to have any disputes settled by arbitration as agreed, as
can be seen from the correspondence annexed hereto and referred to above, and
the further letters dated August 7, August 19, and October 4, 1991 annexed
hereto and marked Annexure 'F'. The two impugned ,applications' are brought in
Title Suit No. 208 of 1991. D- 4 did not authorize Mr Misra to act in Title
Suit No. 208 of 1991. No Vakalatnama authorizing any person to act on behalf of
D-4 in Title Suit No. 208 of 1991 was filed until M/s Swarup John & Co.
filed their Vakalatnama on ... 199 1. Accordingly, it is submitted that the
impugned applications are each a nullity, void and of no effect, and therefore
could not be a step in the action.
will be observed, further, that the Vakalatnama as filed is granted by D-4
11 are not parties to that Vakalatnama.
11 had not been properly served in any of these proceedings in July and August
1991 when the impugned applications were filed.
had not issued any Vakalatnama nor were any Vakalatnamas either given to Mr Misra
or filed on behalf of D-5 to 11, and for this reason, also, the impugned
applications are void and of no effect.
all these circumstances it is further or alternatively submitted that the Hon'ble Court erred on both occasions in granting
time on the basis of each of the two impugned applications. It is submitted
that the Hon'ble Court had no power to act on applications
brought by persons without authority and/or in the wrong proceedings 166 and/or
on behalf of the wrong parties and/or in response to void applications, and
accordingly the Hon'ble
Court made a serious
mistake." Along with the affidavit all the documents mentioned in it were
trial court, however, dismissed the applications for stay filed by defendant 4
and defendants 5 to 11 by its order dated June 23, 1992.
this stage it would be useful to state the facts in relation to an application
filed under Section 3 of the Foreign Awards Act on behalf of defendants 1 to 3
will be noticed that so far as the suppliers are concerned, they never put in
any appearance to oppose the application for ad interim injunction that the
plaintiff had filed against defendants 4 to 12. They, however, filed the
application purporting to be under Section 3 of the Foreign Awards Act for stay
of the suit in view of three separate contracts entered into between the
borrower and the suppliers containing arbitration clauses.
application filed on behalf of defendants 1 to 3 (suppliers) was also dismissed
by the trial court on the same date.
trial court relied on the decision of this Court in Renusagar Power Co. Ltd. v.
General Electric Co.' and noticed the conditions required for stayof suit under
Section 3 of the Foreign Awards Act as held by this Court inthe said case,
which read as under: (SCC p. 725, para 51) "(i) there must be an agreement
to which Article II of the Convention set forth in the Schedule applies;
party to that agreement must commence legal proceedings against another party
legal proceedings must be 'in respect of any matter agreed to be referred to
arbitration' in such agreement;
application for stay must be made before filing the written statement or taking
any other step in the legal proceedings;
Court has to be satisfied that the agreement is valid, operative and capable of
being performed; this relates to the satisfaction about the 'existence and
validity' of the arbitration agreement;
Court has to be satisfied that there are disputes between the parties with
regard to the matters agreed to be referred; this relates to effect (scope) of
the arbitration agreement touching the issue of arbitrability of the
claims." 24.After noticing the analysis of Section 3 of the Foreign Awards
Act in Renusagar case' it took the view that all the defendants have failed to
satisfy conditions (i), (iii), (v) and (vi) and defendant 4 have not
satisfied/fulfilled condition (iv) also, by its impugned judgment dated June
(1984) 4 SCC 679: AIR 1985 SC 11 56 167 25.Three sets of revision petitions
were filed before the High Court one on behalf of defendants 1 to 3
(suppliers), second on behalf of defendant 4 (one of the lenders) and third on
behalf of defendants 5 to II (other lenders). The High Court by its impugned
order dated June 17,
1993 dismissed all the
three revision petitions. It took the view that conditions (i), (ii), (iii) and
(vi) as laid down by this Court in the aforesaid case of Renusagar1 were
satisfied in respect of all the defendants. It, however, took the view that so
far as condition (v) is concerned it is not satisfied in respect of all the
defendants. It held that the agreements for arbitration by different
arbitrators one between defendants 1 to 3 and the borrower (plaintiff) and the
other between the borrower (plaintiff) and lenders by other set of arbitrators
make the agreements inoperative and are not capable of being performed. The
High Court, however, again affirmed the finding of the trial court that defendant
4 has not satisfied condition (iv) inasmuch as before filing the application
for stay, defendant 4 had taken other steps in the legal proceedings.
was no dispute before us so far as the lenders' applications were concerned
that they were governed by Section 3 of the Foreign Awards Act for the purpose
of stay of the suit as the arbitration was contemplated under the Rules of
Conciliation and Arbitration of the International Chamber of Commerce, which
was to take place in Stockholm and the parties rights were to be governed by
we are dealing first with the question of compliance of Section 3 of the
Foreign Awards Act on behalf of defendant 4 and defendants 5 to 11. Section 3
of the Foreign Awards Act reads as under:
Stay of proceedings in respect of matters to be referred to arbitration.-
Notwithstanding anything contained in the Arbitration Act, 1940, or in the Code
of Civil Procedure, 1908, if any party to an agreement to which Article II of
the Convention set forth in the Schedule applies, or any person claiming
through or under him commences any legal proceedings in any court against any
other party to the agreement or any person claiming through or under him in
respect of any matter agreed to be referred to arbitration in such agreement,
any party to such legal proceedings may, at any time after appearance and
before filing a written statement or taking, any other step in the proceedings,
apply to the Court to stay the proceedings and the Court, unless satisfied,
that the agreement is null and void, inoperative or incapable of being
performed or that there is not, in fact, any dispute between the parties with
regard to the matter agreed to be referred, shall make an order staying the
(iv) as culled out from the decision in the case of Renusagar1 is really not
complete. The condition really is that where one of the parties to the
arbitration agreement, in spite of it, commences any legal proceedings in any
court against the other party, any party to such legal proceedings may, at any
time after appearance and before filing a written 168 statement or taking any
other step in the proceedings, apply to the court to stay the proceedings. One
of the conditions for applicability of condition (iv) is that there must be
appearance on its behalf before court in which the proceedings are pending and
after filing appearance, but before filing the written statement or taking
other steps in those proceedings, the party concerned must apply for stay.
condition of putting in appearance is equally important.
clear from the discussions of the facts by the trial court as well as in view
of the affidavit filed on behalf of defendant 4 of Ms Barbro Margareta Lundberg
and the express instructions conveyed to its counsel with the power of attorney
dated June 28, 1991 which was specifically limited to the Misc, Case No. 143 of
1991, it limited the act of appearance merely to oppose the application for ad
interim injunction operating against defendant 4. It is again clear that the
party concerned must put in appearance in the suit before applying for stay
under Section 3 of the Foreign Awards Act. At the stage applications purporting
to be on behalf of defendants 4 to 11 were filed on July 31, 1991 and August
24, 1991, seeking time
to file written statement, no appearance had been filed on behalf of defendants
5 to 11 at all and no appearance had been filed in the suit on behalf of
defendant 4. It will again be observed that the Vakalatnama dated June 24, 1991 was specifically given in respect
of Misc. Case No. 143 of 1991 and no other court proceedings. No power of
attorney was filed on behalf of defendant 4 in the suit at all with either of
the two applications seeking time for filing written statement. The
applications for seeking time were filed contrary to the express instructions
given to the counsel appearing on behalf of defendant 4 vide communication
dated June 19, 1991 as is clear from paragraphs 1 to 3 thereof which are as
The instructions at present are to contest only the jurisdiction of the Court
in Cuttack over defendants 4 to II in the
Accordingly, you are under no circumstances to take any step in the action (in
the technical sense) or to do anything else which might be construed as a
submission to the jurisdiction of any Indian Court in respect of this matter.
Clients and the Syndicate of banks they represent consider this matter to be so
important that you are not to divert from these instructions without express
written instructions either from Svenska Handelsbanken (in the person of Mrs
Lundberg or Mrs Malin) or from my firm." 28.The relevant part of second
communication dated July 17, 1991 which was sent by Fax reads as follows:
I please remind you that your present instructions are only to bring the
pending application relating to jurisdiction in the Court of the Subordinate
Judge in Cuttack, and not to take any other steps either in that application or
in the main action. Should we lose and you wish to advise an appeal, please do
so and seek written instructions from us." 169 29.The express instructions
were again given to the counsel on August 1, 1991by Fax, relevant part whereof
reads as under:
I understand the position we are awaiting a decision of the lower court on
Monday, 5th August. Whatever that decision may be your express instructions
remain to take no other step whatever in either the application or the action
without the written instructions of this firm or the clients. Under no
circumstances should any step be taken in the action which would submit either Svenska
or any of the other members of the banking consortium to the jurisdiction of
the Indian Courts." 30.We may also at this stage quote the actual power of
attorney executed on behalf of defendant 4 in Misc. Case No. 143 of 1991 which
Handelsbanken FORM OF VAKALATNAMA IN THE COURT OF THE SUBORDINATE JUDGE,
CUTTACK Miscellaneous Case No. 143 of 1991 Between INDIAN CHARGE CHROME LTD.
Versus ASEA STAL AB & ORS.
all men by these presents, that by this Vakalatnama.
Handelsbanken, Kungstradgardsgatan 2, S-106 70 Stockholm, Sweden, opposite
party No. 4 in the aforesaid case, do hereby appoint and retain Shri A. Misra,
H.P. Rath, P. Panda, G. Rath, B. Das, Advocates to appear for us, in the above
case and to conduct and prosecute (or defend) the same and all proceedings that
may be taken in respect of any application connected with the same, or any
decree or order passed therein including all applications for return of
documents or receipt of any moneys that may be payable to us in the said case
and also in applications for review, appeals under Orissa High Court Order and
in applications for leave to appeal to Supreme Court.
... 1991 Received from the executant(s) satisfied and accepted as I hold no
brief for the other side. Advocate Svenska Handelsbanken sd/- sd/- Astor Olsson
Lars Kinander Accepted as above Advocate Signatures of the Executants Accepted
as above Advocate 170 Accepted as above Advocate"
will be noticed that this power of attorney is not in usual terms which
normally authorise a counsel to enter into compromise or to appoint any other
counsel on his behalf. The power of attorney is specifically in Misc. Case No.
143 of 1991. Again it contains no power on the counsel to appoint any other
counsel on his behalf in the application even.
combined reading of the correspondence as disclosed in the affidavit filed on
behalf of defendant 4 shows that no power of attorney has been executed on
behalf of defendant 4 in favour of any counsel so far as the main suit is
concerned. The counsel was given express instructions not to put in appearance
or take any step in the proceedings relating to suit. If the applications dated
July 31, 1991 and August 24, 1991 had been moved with either express or implied
instructions of the lender, defendant 4, there can be no doubt that it would
normally amount to taking legal steps in the proceedings relating to suit. But
in view of the power of attorney being merely to the proceedings in Misc. Case
No. 143 of 1991 coupled with the express instructions to the contrary, the
counsel had no power or authority to file any application seeking time for
filing written statement. The filing of the two applications is totally ultra vires
the authority and specific instructions of defendant 4 and was thus totally unauthorised
and of no effect on defendant 4.
late as 1930 the Privy Council in the case of Sourendra Nath Mitra v. Tarubala
Dasi2 made the following two observations at page 161 of the report:
observations may be added. First, the implied authority of counsel is not an
appendage of office, a dignity added by the Courts to the status of barrister
or advocate at law. It is implied in the interests of the client, to give the
fullest beneficial effect to his employment of the advocate. Secondly, the
implied authority can always be countermanded by the express directions of the
client. No advocate has actual authority to settle a case against the express
instructions of his client. If he considers such express instructions contrary
to the interests of his client, his remedy is to return his brief."
The Supreme Court also had an occasion to examine the power of the pleader to
enter into a compromise without the consent of the party concerned in the case
of Jamilabai Abdul Kadar v. Shankarlal Gulabchand3. It upheld the implied power
of the advocate as well as the pleader to compromise but in paragraph 9 of the
judgment observed that one thing is certain "that if a suitor countermands
his pleader's authority to enter into a compromise or withholds, by express
recital in the vakalat, the power to compromise the legal proceeding, the
pleader (or, for that matter, the 2 AIR 1930 PC 158 :57 IA 133: 34 CWN 453 3
(1975) 2 SCC 609 171 advocate) cannot go against such advice and bind the
principal, his client. This is as illegal as it is unprofessional".
are thus constrained to reverse the findings of both the trial court as well as
the High Court regarding non- satisfaction of condition (iv) as noticed in the
case of Renusagar1 by defendant 4. On the other hand we are constrained to hold
that no appearance whatsoever was made by defendant 4 so far as the suit is
concerned and in fact the instructions were to the contrary so far as the
counsel is concerned. He acted contrary to express instructions and defendant 4
cannot be bound by such unauthorised "acting" by its advocate
contrary to the express instructions. Since there was no appearance also on
behalf of defendant 4 in the suit no question arose of taking any steps in such
proceedings and, therefore, condition (iv) as contemplated in the case of Renusagarl
is fully satisfied by defendant 4 as well as by defendants 5 to
will be noticed that the only other finding of the High Court against defendant
4 for declining stay of the suit is common with other defendants appellants
before us, namely that they have not satisfied condition (v) as spelt out in
the aforesaid case of Renusagarl.
The High Court at the end of paragraph 8 of its judgment gave the following
factually, I am satisfied that Article II of the convention set forth in the
schedule to the Foreign Awards Act applies to each of the agreements with the three
sets of applicants. Suit out of which these civil revisions arise as legal
proceedings initiated by plaintiff which is a party to each of the agreements
with the applicants. Such suit relates broadly to defects in the equipments
supplied, erection and commission of the power plant by defendants 1 to 3 and
non- satisfaction of terms for payment to defendants 1 to 3 by defendant 4.
These are all in respect of matters agreed to be referred to arbitration as per
the clauses to that effect in the various agreements. By alleging fraudulent
misrepresentations in the plaint against the applicants, plaintiff cannot avoid
the arbitration clauses in view of the broad language of the different clauses,
where question of fraudulent representation can also be effectively answered in
the award to be binding on the parties to the agreement. Therefore, conditions
(i), (ii), (iii) and (vi) as laid down by the Supreme Court for application of
Section 3 are satisfied in this case in respect of all the applicants."
Again in paragraph 16 of the judgment it was observed thus:
is next to be examined whether condition (v) is satisfied in respect of these
three applications. There can be no doubt that each of the agreements standing
by itself is valid, operative and capable of being per .formed.
the condition relating to existence and validity of each of the agreements are
satisfied. But when all the agreements are put together, a different situation
are concerned with the validity, operativeness and capability of being
performed of the arbitration agreements (1) between the borrower and the
suppliers and (2) between the borrower and the lenders. The finding of the High
Court is that they are valid, operative and capable of being performed if left with
themselves between the borrower and the suppliers on the one hand and between
the borrower and the lenders on the other. The High Court, however, took the
view that they have become inoperative as the agreement with the lenders is
before one set of arbitrators in proceedings to be held at Stockholm i.e.
against the lenders and before other set of arbitrators in proceedings to be
held at Paris i.e. against the suppliers, though, the body, which is to conduct
the arbitration proceedings is the same. This makes the agreements either
invalid, inoperative or incapable of being performed.
The above extracts and reasoning of the judgment of the High Court show that
each of the three defendants 1 to 3 had satisfied all the requirements of
Section 3 of the Foreign Awards Act and each was entitled to have the suit
proceedings stayed against them so that the disputes could be resolved only by
the foreign arbitration proceedings stipulated by them with the plaintiff in
their respective arbitration agreements.
The only ground given by the High Court for refusing the stay of the suit
against defendants 1 to 3 is as mentioned earlier. The High Court has also
pointed out that since the plaint does not make severable allegations against
different defendants who are parties to different contracts, with different
arbitration agreements and the allegations made by the plaintiff against
different defendants are such that they cannot be separated from each other and
since the arbitrations between the plaintiff and different defendants may have
to go to different arbitrators, all the arbitration clauses must be treated as
having become inoperative. It has further been observed by the High Court that
if all the agreements containing arbitration clauses with different defendants
had envisaged only one arbitrator for adjudicating all the disputes, the fact
that there were several. agreements with the different defendants would not
have affected the matter and the award given by common arbitrators could have
bound all the parties in the suit.
appears to us that the aforesaid reasoning of the High Court is strained and
totally erroneous. It also amounts to disregarding the mandatory provision of
Section 3 of the Foreign Awards Act.
For purposes of the present case we are, for the present, considering merely
the applications for stay of the suit filed on behalf of the lenders. It is C.
clear from their applications that all the conditions envisaged for the
applicability of Section 3 of the Foreign Awards Act are fully complied with.
The plaintiff by merely entering into other contracts with different parties
cannot prejudice or defeat the rights of the different party under the
different contract, particularly when the right to foreign arbitration has been
provided by Parliament as an indefeasible right in which the court, does not
have any kind of discretion.
The arbitration is contemplated as per Section 3 of the Foreign Awards Act. The
plaintiff by filing a plaint, cannot make the arbitration clause invalid or
the finding of the High Court that the arbitration agreements have become
inoperative and incapable of being performed or invalid is errors in law and,
therefore, must be set aside.
Venugopal, learned counsel for the borrower/plaintiff referred us to clause 18
of the agreement so far as the lenders are concerned which reads as under:
1 8. Governing Law : Jurisdiction 18.02 All disputes arising from the
provisions of this Agreement or its performance shall be finally settled by
arbitration under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by three arbitrators appointed in accordance
with these rules.Arbitration shall take place in Stockholm and be conducted in
the English language. The award of the arbitral tribunal is final and
obligatory for the parties without any right for a further appeal or
contestation of its fulfillment. The borrower hereby expressly submits to the
jurisdiction of the above mentioned arbitration tribunal.
Notwithstanding the provisions of the foregoing clause, the lender reserves the
right to commence proceedings against the borrower in the Courts of India or
Sweden or the United Kingdom or the State of New York and the borrower hereby
expressly submits to the jurisdiction of such courts.
The borrower hereby irrevocably appoints the Ambassador of India to Sweden as
its process agent to receive service of any proceedings on its behalf."
Venugopal submitted that in view of clause 18.03 there is no arbitration clause
at all in the contracts governing the lenders as one party alone is bound by
such an agreement and the other is not bound by such agreement, the agreement
is not an arbitration agreement. It was submitted that inasmuch as clause 18.02
of the contract declares "the borrower hereby expressly submits to the
jurisdiction of the above mentioned arbitration tribunal" but clause 18.03
through a non-obstante clause relieves the lenders of their duty to have the
disputes settled through arbitration and authorises the lenders to commence
proceedings in the courts of India or any other country as the lenders may
submitted that it is only in the agreement of defendant 4 that instead of any
other country, which is struck off, Sweden, the United Kingdom or the State of
New York are mentioned. However, clause 18.04 makes it clear that the real
purpose of rendering clause 18.02 inapplicable was to enable the lenders to sue
the borrower in Sweden. It was submitted that where the arbitration clause is
rendered inapplicable to a party to the dispute at his choice, the said clause
is no arbitration clause at all.
will be noticed that it is totally a new point urged on behalf of the plaintiff
borrower that there is no arbitration clause so far as defendant 4 and
defendants 5 to 11 are concerned.
Since it is a disputed question of fact, we ought not to allow it to be raised
for the first time. However, the arbitration agreements are before us and the
clause is admitted. Defendant 4 has throughout been relying upon clause 18.02
of the contract and still is ready and willing to have the dispute settled by
arbitration under the said clause, should the plaintiff raise it before the ICC
in accordance with clause 18.02. It is the plaintiff who is resisting
arbitration and once the suit instituted by it in India is stayed it is for the
plaintiff to have the matter resolved by arbitration.
Clause 18.02 of the contract is the arbitration agreement. It clearly provides
that "all disputes ... shall be finally settled by arbitration ... the
award of the Arbitral Tribunal is final and obligatory for all purposes without
any right for a further appeal or contestation of its fulfillment. ..."
Both parties are, therefore, required to have the disputes settled by
arbitration and both parties are bound by the award.
is significant to note that in the present case, no dispute is being raised by
defendant 4. It Is only the plaintiff who is disputing its liability to pay.
When parties agree to have their disputes settled by arbitration it does not
mean that both have bound themselves not to go to court to have the disputes
settled. At page 163 of Russel on Arbitration, Twentieth Edn. it is stated that
"a party to a contract to refer disputes to arbitration has a perfect
right to bring an action in respect of those disputes, and the court has
jurisdiction to try such disputes. Any provision to the contrary would be all
ouster of the jurisdiction of the Courts."
Lord Macmillan in the House of Lords decision in Heyinan v. Darwins Ltd. 4
pointed out as under:
venture to think that not enough attention has been directed to the true nature
and function of an arbitration clause in a contract. It is quite distinct from
the other clauses. The other clauses set out the obligations which the parties
undertake towards each other hinc inde. But the arbitration clause does not
impose on one of the parties an obligation in favour of the other. It embodies
the agreement of both parties that, if any dispute arises with regard to the
obligations which the one party has undertaken to the other, such dispute shall
be settled by a tribunal of their own constitution."
may be that even after entering into an arbitration clause any party may
institute legal proceedings. It is for the other party to seek stay of the suit
by showing the arbitration clause and satisfying the terms of the provisions of
law empowering the court to stay the suit.
18.03, therefore, merely states what is otherwise the legal position. The
object of 4 1942 AC 356, 373 : 166 LT 306, 3 12 : (1942) 1 All ER 337 175
clause 18.03 is to reserve to defendant 4 the right to suit for money advanced.
It is intended to be exercised in cases where there is no dispute whatsoever
but still payments have not been made. These are standard clauses in all credit
agreements. Clause 18.03 gives an additional right. To the extent this clause
is exercised in cases where there are disputes, it would be the exercise of a
legal right and both parties have agreed that the borrower will submit to the
jurisdiction of the court. In such an eventuality defendant 4 would have
elected to exercise the right under clause 18.03, which is in addition to and
not in derogation of the arbitration clause in clause 18.02. As the arbitration
clause remains untouched by clause 18.03, if defendant 4 was to sue the
plaintiff under clause 18.03 for recovery of its loan, it may be open to the
plaintiff (borrower) to apply under Section 3 and seek stay of the suit. The
stay of the suit could be granted notwithstanding clause 18.03 for the simple
reason that the agreement to submit to the jurisdiction to the court under
clause 18.03 relates to the maintainability of the suit in a court agreed to by
both parties, but does not affect the question whether the proceedings should
be stayed in view of the arbitration clause. The plaintiff may well elect to
have the dispute decided in court or it may apply under Section 3 of the
Foreign Awards Act or a similar provision in Sweden, England or United States,
depending on where defendant 4 files the suit. Such clauses like clause 18.03
do not affect the factum or binding nature of the arbitration agreement in
There is no question of parallel proceedings by reason of the nonobstante
clause in clause 1 8.03. The plaintiff can have the dispute settled by
arbitration as agreed in clause 18.02 or it may have the dispute settled in a
court in proceedings instituted by defendant 4. However, the plaintiff cannot
institute proceedings in any court against defendant 4. It is clear from a
reading of clause 18.02 and clause 18.03 that there will be no parallel
There is thus no obstacle in the applications filed on behalf of defendant 4
and defendants 5 to II for staying the suit filed by the borrower/plaintiff
under the provisions of Section 3 of the Foreign Awards Act.
Coming now to the application filed on behalf of defendants 1 to 3 under
Section 3 of the Foreign Awards Act, Mr Venugopal submitted a new argument in
supporting the conclusion of the courts below. The argument was that so far as
defendants 1 to 3 are concerned, Section 3 of the Foreign Awards Act is not
applicable in view of the agreement between the borrower and the suppliers as
contained in clause. 14 of the contract. He further submitted that since as per
clause 14. 1, the contract was to be construed and governed according to the
laws of India, the application for stay of suit should be governed by Indian
Arbitration Act, 1940 and not by Section 3 of the Foreign Awards Act, which
though is an Indian law, yet, in view of the provisions of Section 9(b) of the
Foreign Awards Act, this Court should take a view that only Section 34 of the
Arbitration Act, 1940 would apply to the present suit in view of clause 14.1 of
Learned counsel appearing on behalf of the suppliers/defendants 1 to 3
submitted that this point should not be allowed to be raised for the first time
at this stage and, at any rate, Section 9(b) of the Foreign Awards Act applies
only at the stage 'after the award' and does not apply to the stage before
However, the question whether Section 34 of the Arbitration Act,1940 or Section
3 of the Foreign Awards Act will govern the application filed on behalf of
defendants 1 to 3 is concerned, need not detain us, inasmuch as we have already
held that the suit filed by the plaintiff, as such, is liable to be stayed in
view of the applications for stay filed by the lenders i.e. defendant 4 and
defendants 5 to 11 and, therefore, we leave this question open.
The result is that the appeals filed on behalf of defendant 4 and defendants 5
to 11 are accepted; the impugned order of the High Court dated June 17, 1993
and of the trial court dated June 23, 1992 are set aside and the suit is
directed to be stayed as contemplated by Section 3 of the Foreign Awards Act.
The orders of the trial court on the application for stay filed on behalf of
defendants 1 to 3 are also set aside but in view of our orders on the
application filed on behalf of the lenders, no separate orders are being passed
on the application for stay filed on behalf of defendants 1 to 3. Parties are,
however, left to bear their own costs of the present proceedings.