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2017 DIGILAW 1425 (KER)

International Nut Alliance LLC, United States of America v. Binu John, Proprietor, John's Cashew Company, Kollam

2017-11-20

C.K.ABDUL REHIM, K.P.JYOTHINDRANATH

body2017
JUDGMENT : Jyothindranath, J. 1. This appeal is preferred under Section 37 of the Arbitration and Conciliation Act. 1996 (hereinafter 'the Act' for short) challenging the order dated 6.7.2017 passed in O.P.(Arb.) No.167/2010 on the files of the IInd Addl. District Court, Kollam. The appeal is preferred by the respondent in the above referred O.P. Relevant facts : 2. There was a contract in between the appellant and the respondent for the purchase of Indian cashew nut kernels. The appellant herein purchased cashew nut kernels through a broker namely Agro Trade International and an agreement in this regard was entered into. There arose a dispute regarding the quality of the exported product. In the above referred agreement, there was an arbitration clause. But, in respect of the forum, there was a dispute. Originally, it was entered as CENTA, but it was corrected as AFI by the appellant. Not accepting the objection, arbitration was conducted by Association of Food Industries (for short AFI) and an award was passed. Thereafter the respondent herein filed an application under Section 34 of the Act before the District Court, Kollam to set aside the said award. It was considered by the IInd Addl. District Court, Kollam and the impugned order was passed by which the foreign award was set aside. The main challenge in this appeal is in respect of the maintainability of the said application. 3. The learned counsel for the appellant submitted before us that the dispute is in respect of a foreign award. When it is a foreign award, Part I of the Act is not applicable. In support of the same, it is also submitted that a Constitutional Bench of the Hon'ble Apex Court held in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. [ (2012) 9 SCC 552 ] (here-in-after referred to as BALCO case) that Part I of the Act will not be applicable in respect of a foreign award, where the seat of arbitration is outside India. It is also submitted that the said legal position was again reiterated by the Apex Court in Union of India v. Reliance Industries Limited and Ors. [ (2015) 10 SCC 213 ] and in Imax Corporation v. M/s. E-City Entertainment (I) Pvt. Limited ( AIR 2017 SC 1372 ). It is also submitted that the said legal position was again reiterated by the Apex Court in Union of India v. Reliance Industries Limited and Ors. [ (2015) 10 SCC 213 ] and in Imax Corporation v. M/s. E-City Entertainment (I) Pvt. Limited ( AIR 2017 SC 1372 ). It is also submitted before us that even if the dictum laid down by the Apex Court in Bhatia International v. Bulk Trading S.A. and Another [ (2002) 4 SCC 105 ) is applicable in this particular case, it is categorically stated therein that when there is an agreement, express or implied to exclude Indian law, Part I of Arbitration Act, 1996 will not be applicable. As per Annexure A1 and A2, the intention of the parties was to conduct the arbitration not in India, but in a foreign country. Apparently, it is an implied agreement to exclude Indian curial law. Thus, the principles laid down in Bhatia's case (supra) will also show that Part I will not be applicable in the case in hand. 4. The learned counsel for the respondent submitted before us that while pending the matter before the District Court, earlier, the matter was taken up in a writ petition before this court by the appellant and it was held by the court to proceed with the matter. The said judgment was challenged before a Division Bench of this court. That was also not successful. Even though an attempt was made before the Honourable Apex Court, the SLP was not admitted. 5. Further contention raised before us is that the agreement in this case is dated 25.06.2009. Then, as per the law laid down by the Hon'ble Apex Court in BALCO's case (supra), the judgment in Bhatia's case will be applicable in respect of this case, as the agreement came into existence even before the judgment in BALCO's case (supra). It is also submitted before us that the dispute is regarding the arbitral authority itself. An application under Section 34 of the Act will lie especially when the proceeding in this case started even before the judgment in BALCO's case (supra) and further, as per the law declared therein, the judgment in the Bhatia's case will be applicable in respect of the dispute in this case. Under such circumstances, an interference by this court is not warranted in an appeal under Section 37 of the Act. Under such circumstances, an interference by this court is not warranted in an appeal under Section 37 of the Act. On facts also, the respondent's categoric case is that arbitration clause was altered or changed by the appellant unilaterally. Thus, the forum to which the dispute is amenable is the courts in India. 6. Some facts, as already stated, are admitted facts i.e. in the broker contract, arbitration was specified as CENTA (short form for Combined Edible Nut Trade Association in London) which was admittedly corrected/altered by the appellant herein as AFI. When notice received, respondent herein disputed the authority of AFI to conduct arbitration as there was no agreement in this regard. Respondent's case is that a fraud committed upon them by the appellant by altering the arbitral authority. It will change seat as well as forum. 7. The point to be considered is that when there is a dispute in respect of the arbitral authority itself, an award passed by such an authority whose seat was in a foreign country, can be set aside by an Indian court. Position of law 8. As per the law laid by the Hon'ble Apex court in BALCO's case, Part I of the Act is only applicable to arbitration which takes place within the territory of India. But, the Hon'ble Apex Court, to do complete justice, ordered that the law laid as above will be operative only prospectively. The judgment was rendered on 6.9.2012. 9. To have a clear picture, the operative portion of the judgment in BALCO's case ( supra) is quoted below : “193. In this view of the matter, it is patent that there is no existing provision under the Civil Procedure Code or under the Arbitration Act, 1996 for a court to grant interim measures in terms of Section 9, in arbitrations which take place outside India, even though the parties by agreement may have made the Arbitration Act, 1996 as the governing law of arbitration. 194. In view of the above discussions, we are of the considered opinion that the Arbitration Act, 1996 has accepted the territoriality principle which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within India. 194. In view of the above discussions, we are of the considered opinion that the Arbitration Act, 1996 has accepted the territoriality principle which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within India. We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to international commercial arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996. In our opinion, the provisions contained in the Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996. 195. With utmost respect, we are unable to agree with the conclusions recorded in the judgments of this court in Bhatia International and Venture Global Engg. . In our opinion, the provisions contained in Section 2(2) of the Arbitration Act, 1996 is not in conflict with any of the provisions either in Part I or in Part II of the Arbitration Act, 1996. In a foreign-seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the Arbitration Act, 1996 is limited to all arbitrations which take place in India. Similarly, no suit for interim injunction simpliciter would be maintainable in India, on the basis of an international commercial arbitration with a seat outside India. 196. We conclude that Part I of the Arbitration Act, 1996 is applicable only to all the arbitrations which take place within the territory of India. 197. The judgment in Bhatia International was rendered by this court on 13.03.2002. Since then, the aforesaid judgment has been followed by all the High Court’s as well as by this Court on numerous occasions. In fat, the judgment in Venture Global Engg. Has been rendered on 10.1.2008 in terms of the ratio of the decision in Bhatia International. 197. The judgment in Bhatia International was rendered by this court on 13.03.2002. Since then, the aforesaid judgment has been followed by all the High Court’s as well as by this Court on numerous occasions. In fat, the judgment in Venture Global Engg. Has been rendered on 10.1.2008 in terms of the ratio of the decision in Bhatia International. Thus, in order to do complete justice, we hereby order, that the law now declared by this court shall apply prospectively, to all the arbitration agreements executed hereafter.” 10. Thus, as per the judgment of Apex Court, even though, an application under Section 34 of the Arbitration Act will not lie in a case of foreign award passed from a foreign seat, as the operation of judgment was held only as prospective in nature, the question to be considered is, as per the judgment in Bhatia's case (supra), whether the impugned judgment can be sustained. The law laid down by the judgment in Bhatia's case (supra) can be gathered from paragraph 32 of the judgment. It is stated as follows : “32. To conclude we hold that the provisions of Part I would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India the provisions of Part I would compulsory apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part I. In cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case the laws or rules chosen by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or rules will not apply.” Consideration of point on the facts of the case 11. A scrutiny of Annexure A1 and A2 will reveal that it is a broker contract where Annexure A1 and A2 were signed by the respondent and appellant respectively. Both Annexure A1 and A2 were written in a format, which will show that there was an agreement dated 25-6-2009 regarding arbitration as the mode of redressal of disputes. The intention of the parties was to conduct arbitration in respect of disputes. Both Annexure A1 and A2 were written in a format, which will show that there was an agreement dated 25-6-2009 regarding arbitration as the mode of redressal of disputes. The intention of the parties was to conduct arbitration in respect of disputes. It is true that there was dispute in respect of the agreed seat and the forum, that is, in respect of where and by whom the arbitration has to be conducted. As per the case of the respondent, when he signed the agreement, the forum of arbitration was written as CENTA. The seat of CENTA is in London, in England. It was altered by the appellant herein as AFI, where seat is at New York, U.S.A. The specific case of the appellant is that it was only a correction of mistake or error, as the parties had nothing to do with CENTA, in England. The stand of the respondent is that the alteration was without authority and it was a fraud committed on him. 12. As already stated, there was a meeting of mind in respect of the fact that in respect of any dispute, arbitration was the option. The dispute was only whether it should be CENTA or AFI. Both are trade associations, one at London and other at New York. Both got their own mechanism of arbitration. Thus, it can be seen that both parties are agreeable to that extent that arbitration should be outside India and the curial law will not be the Arbitration and Conciliation Act of India. In this case, rightly or wrongly an award of AFI came into existence, which was challenged before the court below under Section 34 of the Act and the impugned order came into existence. 13. When the intention of the parties was to resort to arbitration in respect of disputes, and Indian curial law was impliedly excluded, then there will be no question of challenging the said foreign award under Section 34 of the Act, in an Indian Court to set aside the same. It is to be remembered that in this case, there was an implied exclusion of Indian arbitration law. Thus, following the judgment in Bhatia's case (supra), which will be applicable in this case, we hold that even though there was a dispute or non-concurring on foreign seat and forum, a foreign award came into existence cannot be set aside by an Indian court. Thus, following the judgment in Bhatia's case (supra), which will be applicable in this case, we hold that even though there was a dispute or non-concurring on foreign seat and forum, a foreign award came into existence cannot be set aside by an Indian court. When there is an implied agreement to exclude Indian law, the court will not get jurisdiction under Section 34 of the Act to go into the merits of the case. 14. It is also very relevant to consider paragraph 135 of the judgment in BALCO's case (supra). Before coming to the conclusion, the Apex Court considered the Article of the New York Convention. Paragraph 135 of the said judgment reads as follows : “Thus, the intention of the legislature is clear that the court may refuse to enforce the foreign award on satisfactory proof of any of the grounds mentioned in Section 48(1), by the party resisting the enforcement of the award. The provision sets out the defences open to the party to resist enforcement of a foreign award. The words “set aside or suspended”, in clause (e) of Section 48(1) cannot be interpreted to mean that, by necessary implication, the foreign award sought to be enforced in India can also be challenged on merits in Indian courts. The provision merely recognises that courts of the two nations which are competent to annul or suspend an award. It does not ipso facto confer jurisdiction on such courts for annulment of an award made outside the country. Such jurisdiction has to be specifically provided in the relevant national legislation of the country in which the court concerned is located. So far as India is concerned, the Arbitration Act, 1996 does not confer any such jurisdiction on the Indian courts to annul an international commercial award made outside India. Such provision exists in Section 34, which is placed in Part I. Therefore, the applicability of that provision is limited to the awards made in India. If the arguments of the learned counsel for the appellants are accepted, it would entail incorporating the provisions contained in Section 34 of the Arbitration Act, 1996, which is placed in Part I of the Arbitration Act, 1996 into Part II of the said Act. If the arguments of the learned counsel for the appellants are accepted, it would entail incorporating the provisions contained in Section 34 of the Arbitration Act, 1996, which is placed in Part I of the Arbitration Act, 1996 into Part II of the said Act. This is not permissible as the intention of Parliament was clearly to confine the powers of the Indian courts to set aside an award relating to international commercial arbitrations, which take place in India.” 15. At this juncture, Section 48 (1) (d) and (e) of the Act is relevant to be quoted which states as follows : “ 48. Conditions for enforcement of foreign awards.- (1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that – (a) ------ (b) ------ (c) -------- (d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.” 16. Thus, it can be seen that under Section 48(1)(d), a party can resist the enforcement of foreign awards on the grounds shown therein and under Section 48(1)(e) a competent authority has to set aside the award to resist the enforcement. The 'competent authority' of the country in which, or under the law of which, that award was made as mentioned above can be only an authority in USA in the case in hand and that cannot be an Indian court, which is evident from the above referred paragraph 135 of BALCO's case. When the curial law adopted impliedly by the parties, as per Annexure A1 and A2, is not that of Indian Arbitration Act and further when the seat of arbitration was in New York, the court in India will not have the jurisdiction to entertain an application under Section 34 of the Act. 17. Let us consider for a moment, the argument of the learned counsel for the respondent that fraud committed on the respondent by the appellant by altering 'CENTA' as 'AFI'. 17. Let us consider for a moment, the argument of the learned counsel for the respondent that fraud committed on the respondent by the appellant by altering 'CENTA' as 'AFI'. Then also, by considering the facts of the case, it can be seen that to invoke Section 34 of the Act, the factum of arbitration and passing of award in New York, USA has to be accepted. By alleging that the original transaction took place in India and alleging “fraud”, the substantial law of India cannot be incorporated into Section 34 of the Act to attack the award. Section 34 of the Act can be invoked only when Part I of the Act is applicable. Even in a case where the substantial law is applicable, in a proceeding under Section 34 of the Arbitration Act, 1996, a foreign award cannot be set aside. Surely enforcement can be resisted within India as per the grounds available under Section 48 of the Act. There cannot be a dispute between the parties that “fraud” if substantiated is a ground to resist the enforcement under Section 48 of the Act, especially in the light of Explanation I (before and after the amendment) given to clarify when an award is said to be in conflict with the public policy of India. 18. Resisting the enforcement of a foreign award and setting aside a foreign arbitration award are two different and distinct things. It is to be remembered that even if an award by AFI is set aside under Section 34 of the Act by an Indian Court, it may be executable at U.S.A. To set aside an award passed therein, curial law applicable there in U.S.A. has to be followed. But surely under Section 48 of the Act, for the reasons stated therein, enforcement of a foreign award can be resisted in India. When the court is not having the jurisdiction to set aside an award, there will be no question to consider the facts on merit by the Indian court. Thus, it can be only held that the impugned order passed by the court below is without jurisdiction and has to be set aside. Thus, the appeal is allowed. The order passed by the IInd Addl. District Court, Kollam in O.P.(Arb.)No.167/2010 dated 6.7.2017 is hereby set aside. Thus, it can be only held that the impugned order passed by the court below is without jurisdiction and has to be set aside. Thus, the appeal is allowed. The order passed by the IInd Addl. District Court, Kollam in O.P.(Arb.)No.167/2010 dated 6.7.2017 is hereby set aside. While allowing the appeal, we clarify that the findings contained in the impugned order of the District Court on any of the issues will not be a bar to raise the very same contention by the parties in a proceeding under Section 48 of the Arbitration and Conciliation Act, 1996.