M/S Dozco India P. Ltd.
Vs. M/S Doosan Infracore Co. Ltd. [2010] INSC 839 (8 October 2010)
Judgment
"REPORTABLE"
THE SUPREME COURT OF
INDIA CIVIL APPELLATE JURISDICTION Arbitration Petition No. 5 of 2008 M/s Dozco
India P. Ltd. ... Petitioner Versus M/s Doosan Infracore Co. Ltd. ...
Respondent
V.S. SIRPURKAR, J.
1.
This
is a petition under section 11(6) of the Arbitration and Conciliation Act
(hereinafter called `the Act'). While the petitioner is registered under the Companies
Act, 1956, the respondent is a company incorporated in Seoul, South Korea with
its principle place at Seoul. The disputes have arisen in between these two
companies out of a Distributorship Agreement which was entered between the
parties on 2.2.2004. By this, the petitioner was to be the exclusive
distributor of the respondent in India and Bhutan for its products like
Excavators, Wheel Loaders etc. Article 23 of the Distributorship Agreement
provides 2 for the resolution of disputes by arbitration. Since the disputes
have arisen in between the two companies and since one of the companies is
based in Seoul, South Korea, the present petition has been filed treating this
to be an international arbitration. There is no dispute between the parties
that this will be the international arbitration on the basis of the arbitration
Clause being Article 23 of the Distributorship Agreement.
2.
There
is also no dispute that the disputes have arisen between the parties on account
of which the respondent purported to terminate the Agreement entered into
between them. In pursuance of the disputes, the petitioner issued notice dated
01.09.2007 for appointment of an Arbitrator to resolve the disputes arisen
between the parties. However, that not having been done, the present petition
is necessitated.
3.
Since
the parties have not disputed about the existence of the arbitration clause, a
live issue on account of the existence of the disputes, there would be no
question of recording any finding. However, for putting the record straight,
the issues as raised by the petitioner are as follows:
1. "whether the
premature and whether allegedly premature and unilateral termination of the
distributorship agreement by the respondent is valid in law.
2. whether the various
contentions raised by respondent for terminating the distributorship agreement
are valid in law
3. whether the
respondent are right in unilaterally raising the price of the products in the
middle of the year
4. whether the
respondent is right in unilaterally controlling the supplies to the petitioner
5. whether the
respondent is stopped from its promise to the petitioner to appoint them as
national dealer for 10 years
6. whether the
respondents are liable for damages to petitioner for breach"
4.
The
petition is countered on behalf of the respondent who opposes the same on
account of maintainability. According to the respondent, only the Rules of
Arbitration of International Chamber of Commerce would apply in accordance with
the Agreement between the parties. It is contended by the respondent that this
Court will have no jurisdiction much less under Section 11(6) of the Act to
appoint Arbitrator, particularly, because it has been specifically agreed in
Article 22 and 23 which are as under:
"Article 22.
Governing Laws - 22.1
: This agreement shall be governed by and construed in accordance with the laws
of The Republic of Korea.
Article 23.
Arbitration - 23.1 : All disputes arising in connection with this Agreement
shall be finally settled by arbitration in Seoul, Korea (or such other place as
the parties may agree in writing), pursuant to the rules of agreement then in
force of the International Chamber of Commerce (emphasis supplied)"
5.
The
respondent, therefore, contended that the petitioner would not be entitled to
maintain the present proceedings in India by invoking the provisions of the
Act. The respondent specifically disputes the stand of the petitioner that
there is nothing in the Agreement to deny the applicability of Indian
procedural law seeking appointment of Arbitrator. The respondent also
specifically contended that there is express exclusion of Indian Courts and/or
the applicability of the Act. Their basic contention was that under the
relevant clauses the jurisdiction of the Indian Courts is specifically
outstayed. This is particularly because it is specifically provided in Clause
33 that there is an express agreement to get the disputes settled by
arbitration in Seoul in terms of the Rules of Arbitration of Indian Chamber of
Commerce, 5 Paris. The respondent in its Counter has relied on Article 4 of
the Rules of Arbitration of International Chamber of Commerce.
6.
It
seems that previously an application was filed under Section 9 of the Act
before the Madras High Court seeking interim injunction restraining the
respondents, their men and agents from in any manner dealing with their
products in India directly till the conclusion of the arbitral proceedings. It
was pointed out that there was an ex parte order of ad interim injunction by
the High Court on 8.5.2008. However, when the respondent moved an application
for vacating the ex parte order, the respondent had specifically contended that
the Courts at Chennai had no jurisdiction to entertain the application. It was
pointed out that the respondent's application for vacating the injunction was
allowed by the Madras High Court by its order dated 9.6.2008. However, in its
order, it seems that the Madras High Court clarified that the question relating
to the jurisdiction of the Court was left open by the parties to be decided at
a later stage. It also recorded a finding that it was not necessary for it to
go into the question of jurisdiction for the purpose of 6 considering the
injunction application. The respondent has filed the said order before this
Court along with the application under Section 9.
7.
From
the rival contentions raised, the only issue is whether this Court would be
justified and would have the jurisdiction to appoint an Arbitrator under
Section 11 (6) of the Act.
8.
Ms.
Mohana, learned Counsel appearing on behalf of the petitioner, heavily relied
on a few judgments of this Court, namely, Bhatia International v. Bulk Trading
S.A. & Anr. [2002(4) SCC 105], Indtel Technical Services Private Ltd. v.
W.S. Atkins Rail Ltd. [2008 (10) SCC 308] and Citation Infowares Ltd. v.
Equinox Corporation [2009 (7) SCC 220]. All these cases, according to her have settled
the law holding that even in case of international commercial arbitration which
are to be held out of India and to be governed by foreign law, the provisions
of Part I of the Act would still apply unless the parties by agreement, express
or implied, excludes all or any of provisions of Part I of the Act. She has
also drawn the attention of the Court to another decision of this Court in
National Thermal Power Corporation v. Singer Company & Ors. [1992 (3) 7
SCC 551]. The attention of the Court was also invited to the language of the
decision in CMC Ltd. v. Unit Trust of India & Ors. [2007 (10) SCC 751].
There are some other rulings which are relied upon by the learned Counsel. The
main contention, however, is based on paragraph 32 of the decision in Bhatia
International v. Bulk Trading S.A. & Anr. (cited supra) as also paragraph
36 of the decision in Indtel Technical Services Private Ltd. v. W.S. Atkins
Rail Ltd. (cited supra), where reliance was placed on the decision in Bhatia
International v. Bulk Trading S.A. & Anr. (cited supra) which is decision
rendered by a Three Judge Bench. The attention of the Court was also invited to
paragraphs 30, 31 and 36 as also to paragraphs 35, 38 of that judgment where
the decision in Bhatia International v. Bulk Trading S.A. & Anr. (cited
supra) was relied upon. From all these three judgments, it becomes clear that
unless the jurisdiction of the Indian Courts is not specifically excluded at
least Part I of the Act whereunder there is a power to appoint Arbitrator is
covered by Section 11 (6) of the Act, this Court would have jurisdiction to
appoint an Arbitrator even if the arbitration is to be governed by foreign law.
9.
Shri
Gurukrishna Kumar, learned Counsel for the respondent, however, while opposing
this plea urged that in this case and, more particularly, in paragraph 23 such
exclusion can be specifically seen. He has compared the language of Clause 23,
more particularly, with the jurisdictional cause which had fallen for
consideration in Citation Infowares Ltd. v. Equinox Corporation (supra). The
learned Counsel also argued that the bracketed portion in Article 23 cannot be
interpreted so as to mean that the seat of arbitration could be anywhere else
as per the choice of the parties. He pointed out that the bracketed portion is
only for the purpose of providing the convenience of holding proceedings of the
arbitration else where than Seoul. However, that cannot be allowed to override
the main Clause of Article 23. The learned Counsel has contended that the law
laid down in Bhatia International v. Bulk Trading S.A. & Anr. (cited supra)
and the subsequent decisions would not be applicable. The learned Counsel
relied on Sumitomo Heavy Industries Ltd. v. ONGC Ltd. & Ors. [1998 (1) SCC
305]. He also relied on a decision reported as Naviera Amozonica Peruana S.A.
v. Compania Internationacional De Seguros Del Peru [1998] Vol.1 Lloyd's Law
Reports.
10.
The
learned Counsel earnestly argued that there is distinction between a legal seat
of the arbitration and geographically convenient location for holding
proceedings and that is a common feature of international arbitration. He also
relied on a passage in Redfern and Hunter which runs as under:
"The preceding
discussion has been on the basis that there is only one `place' of arbitration.
This will be the place chosen by or on behalf of the parties and it will be
designated in the arbitration agreement or the terms of reference or the
minutes of proceedings or in some other was as the place of `seat' of the
arbitration. This does not mean, however, that the arbitral Tribunal must hold
all its meeting or hearings at the place of arbitration. International
commercial arbitration often involves people of many different nationalities,
from different countries. In these circumstances, it is by no means unusual for
an arbitral Tribunal to hold meeting- or even hearing - in a place other than
the designated place of arbitration, either for its own convenience or for the
convenience of the parties or their witnesses... It may be more convenient for
an arbitral tribunal sitting in one country to conduct a hearing in another
country - for instance for the purpose of taking evidence ... In such
circumstances, each move of the arbitral Tribunal does not if itself mean that
the seat of arbitration changes. The seat of the arbitration remain the place
initially agreed by or on behalf of the parties" (Emphasis supplied)
11.
According
to him, as per the Agreement between the parties, it is clear that the parties
have chosen the 10 proper law of contract as also the arbitration agreement to
be Korean law with a seat of arbitration in Seoul, South Korea and the
arbitration law being conducted in accordance with exhaustive Rules of the
International Chamber of Commerce.
12.
On
the backdrop of these conflicting claims, the question boils down to as to what
is the true interpretation of Article 23. This Article 23 will have to be read
in the backdrop of Article 22 and more particularly, Article 22.1. It is clear
from the language of Article 22.1 that the whole Agreement would be governed by
and construed in accordance with the laws of The Republic of Korea. It is for
this reason that the respondent heavily relied on the law laid down in Sumitomo
Heavy Industries Ltd. v. ONGC Ltd. & Ors. (cited supra). This judgment is a
complete authority on the proposition that the arbitrability of the dispute is
to be determined in terms of the law governing arbitration agreement and the
arbitration proceedings has to be conducted in accordance with the curial law.
This Court, in that judgment, relying on Mustill and Boyd (the Law and Practice
of Commercial Arbitration in England, 2nd Edition), observed in 11 paragraph
15 that where the law governing the conduct of the reference is different from
the law governing the underlying arbitration agreement, the Court looks to the
arbitration agreement to see if the dispute is arbitrable, then to the curial
law to see how the reference should be conducted and then returns to the first
law in order to give effect to the resulting award. In paragraph 16, this
Court, in no uncertain terms, declared that the law which would apply to the
filing of the award, to its enforcement and to its setting aside would be the
law governing the agreement to arbitrate and the performance of that agreement.
The Court relied on the observations in Mustill and Boyd to the effect:-
"It may, therefore, be seen that problems arising out of an arbitration
may, at least in theory, call for the application of any one or more of the
following laws -
1. The proper law of
the contract, i.e. the law governing the contract which creates the substantive
rights of the parties, in respect of which the dispute has arisen.
2. The proper law of
the arbitration agreement, i.e. the law governing the obligation of the parties
to submit the disputes to arbitration, and to honour an award.
3. The curial law,
i.e. the law governing the conduct of the individual reference.
xxxxx xxxxx xxxxx 12
1. The proper law of
the arbitration agreement governs the validity of the arbitration agreement,
the question whether a dispute lies within the scope of the arbitration
agreement; the validity of the notice of arbitration; the Constitution of the
tribunal; the question whether an award lies within the jurisdiction of the
arbitrator; the formal validity of the award; the question whether the parties
have been discharged from any obligation to arbitrate future disputes.
2. The curial law
governs; the manner in which the reference is to be conducted; the procedural
powers and duties of the arbitrator; questions of evidence; the determination
of the proper law of the contract.
3. The proper law of
the reference governs: the question whether the parties have been discharged
from their obligation to continue with the reference of the individual
dispute." (Emphasis supplied) The following paragraph from Mustill and
Boyd is extremely important for the decision of this case:- "In the
absence of express agreement, there is a strong prima facie presumption that
the parties intend the curial law to be the law of the 'seat' of the
arbitration, i.e. the place at which the arbitration is to be conducted, on the
ground that that is the country most closely connected with the proceedings. So
in order to determine the curial law in the absence of an express choice by the
parties it is first necessary to determine the seat of the arbitration, by
construing the agreement to arbitrate."
In paragraphs 15 and
16, this Court has heavily relied on the observations quoted above. If we see
the language of Article 23.1 in the light of the Article 22.1, it is clear that
the parties had agreed that the disputes arising out of the Agreement between
them would be finally settled by the arbitration in Seoul, Korea. 13 Not only
that, but the rules of arbitration to be made applicable were the Rules of
International Chamber of Commerce. This gives the prima facie impression that
the seat of arbitration was only in Seoul, South Korea. However, Ms. Mohana,
learned Counsel appearing on behalf of the petitioner drew our attention to the
bracketed portion and contended that because of the bracketed portion which is
to the effect "or such other place as the parties may agree in
writing", the seat could be elsewhere also. It is based on this that Ms.
Mohana contended that, therefore, there is no express exclusion of Part I of
the Act. It is not possible to accept this contention for the simple reason that
a bracket could not be allowed to control the main clause. Bracketed portion is
only for the purposes of further explanation. In my opinion, Shri Gurukrishna
Kumar, learned Counsel appearing on behalf of the respondent, is right in
contending that the bracketed portion is meant only for the convenience of the
arbitral Tribunal and/or the parties for conducting the proceedings of the
arbitration, but the bracketed portion does not, in any manner, change the seat
of arbitration, which is only Seoul, Korea. The language is clearly indicative
of the express exclusion of Part I of the Act. If there is 14 such exclusion,
then the law laid down in Bhatia International v. Bulk Trading S.A. & Anr.
(cited supra) must apply holding:- "In cases of international commercial
arbitrations held out of India provisions of Part I would apply unless the
parties by agreement, express or implied, exclude all or any of its provisions.
In that case, the laws or rules chosen by the parties would prevail. Any
provision in Part I, which is contrary to or excluded by that law or rules will
not apply."
Even in Indtel
Technical Services Private Ltd. v. W.S. Atkins Rail Ltd. (cited supra), the
parties had not chosen the law governing the arbitration procedure including
the seat/venue of arbitration and it was, therefore, that the Court went on to
exercise the jurisdiction under Section 11(6) of the Act. It was specifically
found therein that there was no exclusion of the provisions of the Act by the
parties either expressly or impliedly, which is clear from the observations
made in the paragraph 37 of that judgment.
13.
Ms.
Mohana, learned Counsel appearing on behalf of the petitioner, however, very
heavily relied on the decision in Citation Infowares Ltd. v. Equinox
Corporation (cited supra). There also, the parties had agreed to be governed by
the laws of California, USA. 15 The learned Counsel invited our attention to
the Clause
10.1 of the agreement
therein, which runs as under:- "10.1 Governing law:
This agreement shall
be governed by and interpreted in accordance with the laws of California, USA
and matters of dispute, if any, relating to this agreement or its subject
matter shall be referred for arbitration to a mutually agreed arbitrator."
Ms. Mohana further
submitted that the language of this Clause is quite comparable to Article 23.1
of the Distributorship Agreement between the parties in this case, whereas,
Shri Gurukrishna Kumar, learned Counsel for the respondent contended that there
is essential difference in the language of both the Clauses. He pointed out
that the language of Article 23.1, in contradistinction with the Clause 10.1 in
the case of Citation Infowares Ltd. v. Equinox Corporation (cited supra),
clearly spells out that the seat of the arbitration was agreed to be in Seoul,
Korea and thereby, there would be express exclusion of Part I of the Act. In my
opinion, there is essential difference between the clauses referred to in the
case of Citation Infowares Ltd. v. Equinox Corporation (cited supra) as also in
Indtel Technical Services Private Ltd. v. W.S. Atkins Rail Ltd. (cited supra)
on one hand and Article 16
23.1 in the present
case, on the other. Shri Gurukrishna Kumar rightly pointed out that the
advantage of bracketed portion cannot be taken, particularly, in view of the
decision in Naviera Amozonica Peruana S.A. v. Compania Internationacional De
Seguros Del Peru (cited supra), wherein it was held:- "All contracts which
provide for arbitration and contain a foreign element may involve three potentially
relevant systems of law: (a) the law governing the substantive contract; (2)
the law governing the agreement to arbitrate and the performance of that
agreement; (3) the law governing the conduct of the arbitration. In the
majority of the cases all three will be the same, but (1) will often be
different from (2) and (3) and occasionally, but rarely, (2) may also differ
from (3)".
That is exactly the
case here. The language of Article 23.1 clearly suggests that all the three
laws are the laws of The Republic of Korea with the seat of the arbitration in
Seoul, Korea and the arbitration to be conducted in accordance with the rules
of International Chamber of Commerce. In respect of the bracketed portion,
however, it is to be seen that it was observed in that case:- ".... It
seems clear that the submissions advanced below confused the legal
"seat" etc. of an arbitration with the geographically convenient
place or places for holding hearings. This distinction is nowadays a 17 common
feature of international arbitrations and is helpfully explained in Redfern and
Hunter in the following passage under the heading "The Place of
Arbitration":
The preceding
discussion has been on the basis that there is only one "place" of
arbitration. This will be the place chosen by or on behalf of the parties; and
it will be designated in the arbitration agreement or the terms of reference or
the minutes of proceedings or in some other way as the place or
"seat" of the arbitration. This does not mean, however, that the arbitral
tribunal must hold all its meetings or hearings at the place of arbitration.
International commercial arbitration often involves people of many different
nationalities, from many different countries. In these circumstances, it is by
no means unusual for an arbitral tribunal to hold meetings - or even hearings -
in a place other than the designated place of arbitration, either for its own
convenience or for the convenience of the parties or their witnesses..........
It may be more
convenient for an arbitral tribunal sitting in one country to conduct a hearing
in another country - for instance, for the purpose of taking evidence..... In
such circumstances, each move of the arbitral tribunal does not of itself mean
that the seat of the arbitration changes. The seat of the arbitration remains
the place initially agreed by or on behalf of the parties.
These aspects need to
be borne in mind when one comes to the Judge's construction of this
policy."
It would be clear
from this that the bracketed portion in the Article was not for deciding upon
the seat of the arbitration, but for the convenience of the parties in case
they find to hold the arbitration proceedings somewhere else than Seoul, Korea.
The part which has been quoted above from the decision in Naviera Amozonica
Peruana S.A. v. Compania 18 Internationacional De Seguros Del Peru (cited
supra) supports this inference. In that view, my inferences are that:-
1. a clear language
of Articles 22 and 23 of the Distributorship Agreement between the parties in
this case spell out a clear agreement between the parties excluding Part I of
the Act.
2. the law laid down
in Bhatia International v. Bulk Trading S.A. & Anr. (cited supra) and
Indtel Technical Services Private Ltd. v. W.S. Atkins Rail Ltd. (cited supra),
as also in Citation Infowares Ltd. v. Equinox Corporation (cited supra) is not
applicable to the present case.
3. Since the
interpretation of Article 23.1 suggests that the law governing the arbitration
will be Korean law and the seat of arbitration will be Seoul in Korea, there
will be no question of applicability of Section 11(6) of the Act and the
appointment of Arbitrator in terms of that provision.
14.
In
terms of what is stated above, the petition is dismissed, but without any
costs.
..................................J.
(V.S.Sirpurkar)
New
Delhi;
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